Builders hit brakes on housing starts but ramp up completions
Builders slowed new construction in April as the Federal Reserve maintained its “higher for longer” stance on interest rates. On the bright side, builders ramped up completions of homes already in the pipeline.
Overall housing starts increased 5.7% to a seasonally adjusted annual rate of 1.36 million units last month, the Department of Housing and Urban Development and Census Bureau reported. However, single-family starts decreased by 0.4% to 1.03 million units as higher mortgage rates above 7% and tighter lending conditions weighed on new homebuilding activity.
“While the start of the year has seen an expansion for single-family home building because of a lack of existing home inventory, home building activity leveled off in April as higher interest rates, tighter lending conditions and lower home building sentiment acted as headwinds on new home construction,” said Carl Harris, chairman of the National Association of Home Builders (NAHB).
Homebuilder sentiment in May posted its first decline since November, moving into negative territory. All three components of NAHB’s index decreased: current sales conditions declined six points to 51, buyer traffic decreased four points to 30, and sales expectations for the next six months fell nine points to 51.
On a positive note, single-family home completions surged 15% compared to March and were up nearly 14% year-over-year, reaching the highest level since November 2022.
“This is new supply that can immediately help offset current housing shortages,” said Odeta Kushi, deputy chief economist at First American.
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However, looking ahead, single-family permits - a leading indicator - decreased for the third straight month, signaling production may decline further. Single-family permits dropped 0.8% to a 976,000 unit rate, the lowest pace since August 2023. Overall, permits were down 3% to a 1.44 million unit annualized rate in April.
In the multifamily sector, permits decreased by 7.4% to an annualized 464,000 pace. Multifamily starts jumped 30.6%, but completions rose at an even faster 18% annual pace as that pipeline moved toward delivery. The number of active multifamily units under construction peaked in July 2023 at 1.02 million apartments but declined to 934,000 in April.
“This additional rental supply will help lower shelter inflation, which is the last leg of the inflation policy challenge,” said NAHB chief economist Robert Dietz.
NerdWallet mortgage expert Holden Lewis noted that builders are pivoting towards more single-family homes rather than apartments due to stronger house price growth.
“Builders made this pivot because house prices are rising swiftly while apartment rents are relatively flat,” Lewis said. “Unmet demand for houses remains strong, while demand for apartments is almost sated.”
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