Housing Starts Lag

Housing starts, or new home construction, hit 1.57 million in April, a drop of 9.5% from March’s downwardly revised figures. Single-family construction led the disappointing figures while multifamily construction picked up. Rising materials prices, lack of land and labor shortages are holding back builders during what is usually the busiest home-buying season. Construction is up 67% compared to April of 2020. Lockdowns and subsequent shutting down of construction activity inflated the annual comparisons.

Single-family construction fell 13.4% in April from March; almost all regions reported less construction activity; the West was flat on the month. Single-family construction is always key for the housing market. Shortages of existing homes for sale, especially at the lower end of the market, have contributed to the pressure on prices over the past year.

Building permits stalled in April as single-family permit losses were offset by multifamily gains. Only the Northeast and South recorded rising multifamily permits during April.

Supply-chain constraints are exacerbating shortages of homes available for sale. The silver lining is that lumber prices may have peaked in early May and begun to come down, but prices still have a long way to go before reaching pre-pandemic levels.

Buyer demand remains strong but rising unaffordability and bidding wars have depressed buyer sentiment to a 10-year low according to Fannie Mae. Less than 50% of buyers believe now is a good time to buy a home. The largest drop in sentiment came from those making $50,000-$100,000, influenced by the lack of supply at the entry level; that is despite higher saving levels and falling mortgage rates. Mortgage applications firmed at the start of May with both refinancing and new home purchase activity increases.

Bottom Line
Demand remains strong as the peak home-buying season opens. Lack of homes for sale in the most in-demand markets is pricing out some buyers. Shortages of land, labor and materials will keep builders constrained. We could see that ease up by the end of the year as prices start to come down from recent peaks.

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