Single-family housing starts fell in April, but multifamily gained momentum

Single-family starts and permits have fallen sequentially and year over year, but the decline is not treated entirely as negative. Homebuilders may be compressing margins to secure sales and work through oversupplies in active new-home markets. Reduced single-family starts are seen as helping absorb excess channel supply, especially at entry-level price points. As supply is absorbed, pricing can stabilize and begin rising, which may improve consumer confidence. Regional results show total housing starts down in the Midwest, South, and Northeast, while the West increased. Single-family starts fell sharply in the Northeast and Midwest but rose in the West and South. Permits declined in every region in April, suggesting continued weakness ahead. The Northeast and Midwest have had stronger start growth recently due to avoiding earlier aggressive building and facing limited supply.

"The fall-off in single-family starts and permits, both sequential and year-over-year, is not viewed entirely as a negative, especially in light of homebuilders having to crush their margins to buy sales and work through oversupplies in some of the nation's most-active new-home markets. We continue viewing reduced SF Starts a positive as excess channel supply still needs to be absorbed, particularly at entry-level price points, writes Trevor Allinson, Wolfe Research homebuilding and building products research analyst in an investors note following today's Census release."

"This way, pricing can stabilize to begin ticking upward and improving consumer confidence. A closer look at regional trends provides additional insight. Total housing starts were negative in each region, other than the West, which ticked up 49%. The Midwest (-9.6%), the South (-3.2%) and the Northeast (-3.2%) all experienced declining new residential activity."

"Single-family housing starts, on a seasonally adjusted annual rate, fell most prominently in the Northeast (-33.3%) and the Midwest (-12.1%). On the other hand, single-family starts were positive in the West (8.3%) and in the South (1.7%). However, this momentary increase in single-family starts in the West and the South won't necessarily translate into positive momentum for the remainder of the year."

"The number of single-family permits authorized in April was negative in every region, including the South (-1.9%) and the Midwest (-3.2%), indicating that starts for the foreseeable future could be negative. Kushi argued that the latest Census data continues to reflect a homebuilding market defined more by caution than confidence, adding that single-family construction activity could remain subdued in the months ahead."

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