Real Estate

US Housing Starts Miss Forecast, Permits Dip Amid Rising Costs

April's U.S. housing starts rise less than expected at 1.36 million, permits fall amid rising mortgage rates.

By Tal Alexander

5/16, 11:15 EDT
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Key Takeaway

  • US housing starts in April rose less than expected to 1.36 million annualized rate, missing the forecast of 1.42 million.
  • Building permits fell 3% to a 1.44 million rate, the lowest since late 2022, indicating future construction may slow.
  • Rising mortgage rates and high construction costs are creating headwinds for housing activity despite low existing home inventories.

A Cooling Trend in U.S. Home Construction

April's U.S. housing market data reveals a nuanced picture of the sector's current state, with new home construction rising less than anticipated and permits for future activity declining. This trend suggests that the recent uptick in mortgage rates is causing builders to reconsider their plans, potentially signaling a cooling period for the housing market. According to Bloomberg, housing starts increased by 5.7% to a 1.36 million annualized rate, falling short of the forecasted 1.42 million rate. This development is particularly noteworthy as it follows a period of downward revisions to prior months, indicating a possible shift in market dynamics.

Regulatory and Economic Pressures

The decline in authorized permits for single-family home construction for three consecutive months to the lowest level since August, as reported by Bloomberg, points to a cautious outlook among builders. This cautiousness is further underscored by a significant drop in permits for apartment complexes, suggesting a broader hesitation in the market. These trends are occurring against a backdrop of regulatory changes and economic pressures, including high construction and financing costs, which Bloomberg Economics identifies as creating headwinds for housing activity. The National Association of Home Builders has also expressed concerns about new regulations increasing construction costs, highlighting the complex interplay of factors currently influencing the housing market.

Mortgage Rates and Market Dynamics

The recent fluctuations in mortgage rates have had a noticeable impact on the housing market, with rates remaining above 7% due to persistent inflation concerns. However, a slight easing in consumer price growth reported by Bloomberg may offer some relief and potentially encourage a more favorable lending environment. This situation is mirrored in the multi-source analysis, which notes a slight retreat in mortgage rates from a five-month high, alongside a significant year-on-year increase in housing starts. Despite these challenges, the acute shortage of housing units continues to support new construction, indicating a resilient demand underpinning the market.

A Market at a Crossroads

The U.S. housing market is navigating a complex landscape marked by rising mortgage rates, regulatory changes, and an acute shortage of available homes. While the slight decline in single-family homebuilding and permits in April suggests a cautious approach by builders, the surge in multifamily project starts points to a diversification in the market's response to current conditions. This mixed signal environment, coupled with the potential for Federal Reserve rate cuts, places the housing market at a critical juncture. Builders and buyers alike are closely watching these developments, as the interplay between mortgage rates, regulatory impacts, and housing demand continues to evolve.

Street Views

  • Stuart Paul, Bloomberg Economics (Neutral on US home construction):

    "Even with inventories of existing homes low, there remains an opportunity for homebuilders to meet housing demand generated by family formation. But higher construction and financing costs are creating headwinds for housing activity."