The 6.6% increase in April’s housing starts was more than the anticipated 3.3% increase. On an annual basis, the volatile starts are still down by 1.7% versus a year ago, though this follows the 14.0% change in March. It should also be noted that this year has been particularly mild compared with 2015 (and 2014), which suffered severe winter storms. The last-three-months’ starts have risen by 1.6% following a 1.5% decrease in March. The monthly increase in total starts was due to strength in both multifamily homes, which rose by 10.7% after a 5.3% decrease, and single-family starts, which rose by 3.3% following a 10.9% fall. Multifamily starts are now 12.9% lower than a year ago, while single-family starts are 4.3% higher than last year. Starts in April were still just above the 1 million mark, at 1,077,000. Since 1947, the median monthly reading in housing starts has been 1.46 million. Meanwhile, building permits rose by 3.6%, to 1,116,000—5.3% lower than 12 months earlier; they had been expected to rise by 5.5% in the month.
Regionally, the pattern of housing starts activity again shows some incredibly marked divergences: starts fell by 10.0% in the West and 7.6% in the Northeast, but rose by 22.2% in the Midwest and 14.1% in the South.
According to the latest NAHB homebuilders’ survey for April, building activity was unchanged in the month. The sentiment index remained at 58 for a fourth consecutive month, after 61 in January (50 is the dividing line between viewing conditions as good or poor). The NAHB stated: “Builder confidence has held steady at 58 for four straight months, which indicates that the single-family housing sector remains in positive territory. However, builders are facing an increasing number of regulations and lot supply constraints.” “The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen. Job creation, low mortgage interest rates, and pent-up demand will also spur growth in the single-family housing sector moving forward.”
This report for April represents a partial rebound from the large decline in March. The more mixed performance of housing starts and new home sales of late has been a little surprising given the unseasonably warm weather, the strong employment and income data, falling lending standards for consumers, low mortgage rates and rising house prices. The relative decline in the inventory of existing homes compared to new homes suggests that consumers have preferred to opt for the discounts associated with the purchase of an existing home, while homebuyers are also taking advantage of downsizing baby-boomers moving to cities from the suburbs. Inventories of new homes, meanwhile, are now at the top of their post-crisis range. Data from core-logic suggests that much of this inventory is due to a lack of sales for the highest-priced tier of houses, whereas the lower tiers have seen inventories relatively unchanged. Overall, demand for housing remains relatively healthy, and both starts and home sales are still well below their historical averages allowing further room for improvement. Housing is still very much a bright spot in the macro-picture.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.