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Construction of new homes ticked up last month despite higher mortgage rates, partly reversing a dramatic slump in March.
Housing starts rose 5.7% in April from March, to a seasonally adjusted annual rate of 1.36 million, according to data released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. But they fell 0.6 percent from a year ago.
“The modest rebound in housing starts in April confirmed that the slump the month before was a weather-related blip,” says Capital Economics property economist Thomas Ryan. “But the recovery wasn’t as strong as we had anticipated.”
With a dearth of existing homes on the market, new construction has played a key role in meeting buyer demand in recent months. But there are signs that higher mortgage rates are weighing on homebuilders, with a key measure of builder confidence plunging last month. Mortgage rates jumped back above 7% in April, ending the month at 7.17%, according to Freddie Mac.
April’s construction rebound was due solely to a jump in multi-family housing starts, which surged 30% from the prior month to an annual rate of 329,000. Despite the monthly gain, multi-family construction starts are down 25.9% from a year ago, and remain well below historical averages.
Single-family home starts were roughly flat from March to April, declining by less than one percent. Still, new-home construction was up 17.9% from a year ago.
Where homebuilders are the most active
Housing starts for April dropped on a monthly basis in the Northeast and West, but rose in the South and Midwest.
New construction jumped 19.1% in the Midwest, a gain driven entirely by multi-family units. Likewise, multi-family starts were behind a 10.1% increase in the South. Single-family starts were down less than 1% on the month in both regions.
Housing starts fell 22.6% in the expensive Northeast, with single-family starts falling 13.6% in the region. The West saw a modest overall decline of 2.5%, although single-family starts there ticked up 3.1%.
Builders search for ways to adapt to higher rates
Higher mortgage rates continue to weigh on the housing market in a number of ways, by discouraging sellers of existing homes who are “locked in” at lower rates, and pinching would-be homebuyers with higher monthly payments. Builders have responded by searching for ways to lure homebuyers.
“Single-family homebuilders have not only been dropping prices, but also have been building smaller homes designed to be more affordable to meet starter-home and mid-tier market demand,” says Bright MLS Chief Economist Lisa Sturtevant.
But there are signs that market conditions are starting to weigh on builders. On Wednesday, a key survey of builder sentiment posted its first decline since November 2023.
Builder confidence in the market for newly built single-family homes was 45 in May, down six points from April, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
“The market has slowed down since mortgage rates increased and this has pushed many potential buyers back to the sidelines,” says NAHB Chairman Carl Harris.
The May HMI survey also revealed that 25% of builders cut home prices to bolster sales in May. The average price reduction in May held steady at 6% for the eleventh straight month.
Builders also reported their use of sales incentives ticked up to 59% in May, from a reading of 57% in April.
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