29 May

Why Housing Starts Fell 3.7% in April

WRITTEN BY Ricky Cove

Housing starts fell in April

The trend of high volatility in the housing market continued in April as housing starts for the month were reported to have fallen 3.7% following a 1.8% rise in March and a 7% fall in February.

The United States Census Bureau and the Department of Housing and Urban Development reported housing starts of 1.29 million for April, lower than the revised March reading of 1.34 million. The bright spot in this month’s report was the increase in single-family housing starts to 894,000 in April from 893,000 in March. Multifamily unit authorizations fell from 431,000 in March to 374,000 in April. Housing market (PKB) starts are generally volatile, and this month’s fall in multifamily units should not be a cause for concern, as this sector is the most volatile one in the housing market.

Why Housing Starts Fell 3.7% in April

Regional trends in the housing market

The fall in housing starts was primarily the result of a 12.6% decline in multifamily housing. Among the four regions under consideration, housing starts were reported to have increased in the south, with a total gain of 6.4% starts compared to March and an impressive increase of 17.2% in single-family starts. The remaining three regions—the northeast, the Midwest, and the west—were reported to have witnessed falls of 8.1%, 16.3%, and 12%, respectively, in housing starts.

Implications for homebuilders

The rebound in single-family housing starts is a positive sign for the industry and the economy. On average, a single-family unit has a higher net average contribution to GDP than a multifamily unit. The recent quarter’s earnings from homebuilder companies such as Lennar (LEN) and D.R. Horton (DHI) paint a different picture, as higher mortgage costs are deterring investors.

The DJ US Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB), which has holdings in DHI, PulteGroup, and LEN, have seen year-to-date falls of 12.3% and 10.8%, respectively. In the next part of this series, we’ll analyze the building permit data from April.

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