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

U.S. housing starts declined by 2.8% in April to a seasonally adjusted annual rate of 1.465 million, a figure that nonetheless exceeded the consensus forecast of 1.410 million. This decline follows a significant upward spike in March. On a year-over-year basis, overall starts are up 4.6%.

The decrease in April was primarily driven by a 9.0% fall in single-family starts, which are now down 2.4% over the past year. In contrast, multi-unit starts saw an increase in April and have risen by 19.7% over the last twelve months, largely bolstering the overall housing starts figures. This suggests a divergence in construction activity between single-family and multi-unit dwelling categories.

Looking ahead, new building permits increased by 5.8% in April to an annualized rate of 1.442 million, also surpassing the anticipated 1.384 million. However, similar to starts, this growth was predominantly fueled by a 21.8% jump in the volatile multi-unit category. Single-family permits experienced a 2.6% decline in April, reaching an eight-month low, and are down 5.5% compared to a year ago.

Homebuilders have recently focused on project completion to counter sluggish activity. Completions rose by 4.8% in April to a 1.449 million annual rate, although the overall trend has been slowing, with a 2.0% decrease over the past twelve months. Despite this, 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 were associated with housing busts, a persistent undersupply of homes since 2007, with the exception of the COVID period, is expected to keep national average home prices elevated. The National Association of Home Builders (NAHB) index, a measure of builder sentiment, rose to 37 in May from 34 in April, but a reading below 50 continues to signal that more builders view conditions as poor rather than good.

In other housing market news, pending home sales, which track contracts on existing homes, increased by 1.4% in April, following a 1.7% rise in March, indicating a potential increase in existing home sales next month. Elsewhere in the economy, initial jobless claims fell by 3,000 last week to 209,000, while continuing claims rose by 6,000 to 1.782 million, suggesting ongoing job growth. However, manufacturing sentiment, as measured by the Philadelphia Fed index, unexpectedly declined to -0.4 in April from +26.7 in March.

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**: Official authorizations issued by local governments for the construction of new buildings or additions to existing ones, serving as a leading indicator of future construction activity.

3. **Seasonally Adjusted Annual Rate (SAAR)**: A way to adjust economic data to remove seasonal fluctuations, presenting it as if it were to continue for a full year, making comparisons across different periods more meaningful.