Despite the plunge, starts and permits remain the strongest since December 2006.
By Manuel Gutierrez, Consulting Economist to NKBA
May has been a harbinger of weak economic news. Earlier in the month came news of a potential stall in the jobs market, with employers adding just 266,000 positions, far below expectations. Total employment is still 8.2 million short of peak levels seen in February 2020. Shortly after, retail sales figures revealed a flat performance in April compared to March, following a healthy rise the previous month. Still more concerning news came by way of the inflationary front, with April increases the largest in more than a decade.
Now, it’s housing’s turn. The residential construction market is following this disappointing pattern, with total starts falling to 1.57 million homes in April, a 9.5% drop from March. This decline occurred despite modest increases in the number of permits issued in March and April, as seen in Figure 1.
In fact, the volume of housing permits and starts maintained so far this year exceeds that of any month since December 2006.
This indicates that the housing market is still very strong, even though government policies may start to hinder its further growth.
Despite overall market strength, housing starts fell nearly 10% in April, adding to an array of other concerning economic reports.
The drop in April housing starts was driven almost solely by a sharp 13.4% fall in single-family starts, to an annual rate of 1.087 million units. In fact, according to the bottom-left panel of Figure 2, April’s level is very close to February starts, and the sharp jump in March housing starts belies the pattern of the other three months so far this year.
In contrast to the drop in single-family starts, multifamily starts rose to 482,000 units. Although this is a minimal 0.8% increase, April multifamily starts mark the third time in four months when they exceeded the prior month’s performance.
The annual rate of monthly single-family starts has exceeded the total 2020 volume (shown by the height of the bars above the gray dashed line) every month since last August. That has happened only three times for the multifamily construction segment — and all have been this year.
The upper-right chart of Figure 2 displays the relative shares of both single- and multifamily starts to the total. While single-family represented 73% of total housing starts a year ago, it has fallen to 69% this year, while the reverse has occurred for multifamily.
Regionally, two of the four faced falling starts in April. The South — the largest of the four regions, accounting for over half of all new houses (51% in April) — had an 11% drop from the previous month to an annual rate of 804,000 homes.
Housing starts in the Midwest fell by a whopping 35% to 193,000.
The new housing market in the other two regions improved. Most significant was the 9% increase in the West to 400,000 starts. The West is the second-largest new housing market, contributing 26% of the nation’s new houses.
The Northeast also posted an increase, up 6%, to an annual rate of 172,000 homes.
Since the pandemic had the greatest impact on the economy in April 2020, annual comparisons can be misleading. Total and single-family housing starts are up, as expected, in all four regions. Multifamily starts, however, have risen in only three regions, with the South the sole exception, but minimally so.
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