Housing Construction Nears a Low

New residential construction in April, known as housing starts, came in at a seasonally adjusted annual rate of 891,000; that is 30% below the revised March data and 30% below April of last year. Single-family housing starts lost 38% from a peak of 1.05 million in December 2019, coming in at a low last seen in March 2015. Multifamily starts fell even further to 241,000, more than 60% below the peak in January this year. Serious interruptions stemming from COVID-related lockdowns, from lack of building materials and personal protective equipment (PPE) to delayed or cancelled projects, have plagued builders.

Building permits, while 21% below March data and 20% lower than April last year, stayed above the one million mark. The South and West reported the highest volume of permits while the Northeast and Midwest were constrained by COVID shutdowns; permits in the Northeast alone were 50% lower than a year ago.

Many construction sites closed down even though construction activity was deemed essential in many states under lockdown. Home builder sentiment remains in contractionary territory (below 50) for the second month in the row; responses are improving slightly.

Mortgage applications were positive for the second week in a row as of May 8; purchase applications increased four weeks in a row. The average loan size for new applications has dropped to early 2019 levels. That decline in loan size was due to a drop in incomes, not home prices; home prices have risen more than 7% from the first quarter of 2019 to the first quarter of 2020. Credit conditions have also tightened.

Bottom Line
Real-time data like mortgage applications, added to sentiment surveys and Google searches of phrases like “how to buy a house” (up 50%), suggest we may have hit a trough. The strength of the recovery in housing will be heavily dependent upon credit markets and the ability of prospective home buyers to remain employed. Home buyers, while unable to see homes in person, have been attending virtual open houses and applying for mortgages to prepare themselves for when the housing market reopens. It is this pent-up demand that may help drive us out of recession.

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