U.S. Housing Starts Decline in April, Permits Beat Expectations

U.S. housing starts declined by 2.8% in April, reaching a seasonally adjusted annual rate of 1.465 million. This figure, however, exceeded the consensus expectation of 1.410 million. Despite the monthly decrease, starts are up 4.6% compared to a year ago. The dip in April was primarily driven by a 9.0% fall in single-family starts, which are down 2.4% over the past year. In contrast, multi-unit starts saw an increase in April and have surged by 19.7% year-over-year, contributing to the overall annual growth in housing starts.

New building permits, a key indicator of future construction activity, rose by 5.8% in April to an annual rate of 1.442 million, also surpassing the consensus estimate of 1.384 million. While overall permits showed strength, this gain was entirely attributable to a 21.8% jump in the volatile multi-unit category. Single-family permits, on the other hand, decreased by 2.6% in April to an eight-month low and are down 5.5% compared to a year ago.

Homebuilders have been focusing on completing projects, with completions rising 4.8% in April to an annual rate of 1.449 million. However, completions have been slowing recently, down 2.0% over the past twelve months. Despite this trend, completions have outpaced starts in eight of the last twelve months, leading to an 8.5% reduction in the total number of homes under construction from a year ago. While historically such declines have been associated with housing busts, a persistent undersupply of new homes since 2007 suggests that national average home prices are likely to remain elevated.

The challenging environment for builders is reflected in the NAHB index, a measure of homebuilder sentiment, which increased to 37 in May from 34 in April. A reading below 50 indicates that more builders view conditions as poor rather than good, marking the 25th consecutive month this has been the case. In related housing news, pending home sales, which represent contracts on existing homes, advanced 1.4% in April, following a 1.7% increase in March. This suggests a potential rise in existing home sales, typically counted at closing, in May.

In broader economic data, the Philadelphia Fed index, a gauge of factory sentiment in the region, unexpectedly declined to -0.4 in April from +26.7 in March. On the labor front, initial jobless claims fell by 3,000 last week to 209,000, while continuing claims rose by 6,000 to 1.782 million, indicating ongoing job growth in May.

Key terms:

1. **Housing Starts**: An economic indicator that measures the number of new residential construction projects on which ground has been broken during a given period.

2. **Building Permits**: An authorization given by a local government agency that allows a new construction or renovation project to proceed. It serves as a forward-looking indicator for housing starts.

3. **NAHB Index (National Association of Home Builders/Wells Fargo Housing Market Index)**: A composite index that measures the relative sentiment of home builders regarding current sales conditions, sales expectations for the next six months, and traffic of prospective buyers.