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

U.S. housing starts decreased by 2.8% in April to a seasonally adjusted annual rate of 1.465 million units, although this figure surpassed the consensus estimate of 1.410 million. Despite the monthly decline, starts are up 4.6% compared to a year ago, primarily due to activity in the multi-unit segment.

The overall decline in April was largely attributable to a 9.0% drop in single-family housing starts, which are down 2.4% over the past year. In contrast, multi-unit starts increased by 10.3% in April and have seen a significant 19.7% rise over the last twelve months, indicating a divergence in construction trends between housing types.

New building permits, a forward-looking indicator for construction activity, rose 5.8% in April to an annual rate of 1.442 million, exceeding the 1.384 million consensus expectation. However, similar to starts, this growth was predominantly driven by a 21.8% surge in volatile multi-unit permits. Single-family permits, on the other hand, experienced a 2.6% decline in April, reaching an eight-month low and are down 5.5% year-over-year. This suggests continued headwinds for single-family home construction.

Home completions, which reflect the rate at which new houses are finished, increased by 4.8% in April to a 1.449 million annual rate. Despite this monthly uptick, completions have generally slowed, declining 2.0% over the past year. Notably, completions have outpaced starts in eight of the last twelve months, contributing to an 8.5% reduction in the total number of homes under construction compared to a year ago.

While historical periods with similar declines in homes under construction have been associated with housing busts, the U.S. has faced a consistent shortage of new home construction since 2007, with the exception of the early COVID-19 period. This ongoing supply deficit is expected to keep national average home prices elevated despite various challenges in the homebuilding sector. Builder sentiment, as measured by the NAHB index, rose to 37 in May from 34 in April, though a reading below 50 still signifies that more builders view conditions as poor rather than good, marking the 25th consecutive month in this territory. In other housing news, pending home sales, which track contracts on existing homes, increased for a second consecutive month, rising 1.4% in April following a 1.7% gain in March, suggesting a potential uptick in existing home sales in May. Meanwhile, the Philadelphia Fed index for manufacturing sentiment unexpectedly declined to -0.4 in April from +26.7 in March. On the labor front, initial jobless claims fell by 3,000 to 209,000 last week, while continuing claims rose by 6,000 to 1.782 million, indicating continued job growth.

Key terms:

1. Housing Starts: An economic indicator that measures the number of new residential construction projects on which ground was broken during a specific period, typically reported as an annualized rate.

2. Building Permits: An authorization issued by a local government agency that must be obtained before construction or renovation of a building can begin, serving as a leading indicator for future construction activity.

3. NAHB index: A gauge of homebuilder sentiment, reflecting how confident builders are about current sales, future sales, and traffic of prospective buyers. A reading below 50 indicates that more builders view conditions as poor.