Housing Starts Plummet 16.5 Percent But Building Permits Surge 14.3 Percent

The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced new residential construction statistics for April 2013. The data include building permits, housing starts and housing completions. Of the three, housing starts are the most important indicator for investors, as they are the earliest measure of actual housing activity. Not all building permits result in new construction, as some builders cancel projects. While important, note that residential construction accounts for only 2.4 percent of GDP. Housing starts plummeted 16.5 percent to a five-month low on a 38.9 percent plunge in the volatile category of multi-family construction, while building permits surged 14.3 percent from March. Weather can be an intervening variable of when new construction begins. And of course, the March figures for housing starts printed at a five year high, so some giveback may be expected.

Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,017,000, the highest since June 2008, vs. forecasts for 941,000 permits. This is 14.3 percent above the revised March rate of 890,000 and is 35.8 percent above the April 2012 estimate of 749,000. Single-family authorizations in April were at a rate of 617,000; this is 3.0 percent above the revised March figure of 599,000. Authorizations of units in buildings with five units or more were at a rate of 374,000 in April.

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 853,000. That was below analysts' expectations of a 945,000 unit rate. This is 16.5 percent below the revised March estimate of 1,021,000, but is 13.1 percent above the April 2012 rate of 754,000. Single-family housing starts in April were at a rate of 610,000; this is 2.1 percent below the revised March figure of 623,000. The April rate for units in buildings with five units or more was 234,000 – a 38.9 percent drop in this volatile category.

Privately-owned housing completions in April were at a seasonally adjusted annual rate of 689,000. This is 14.3 percent below the revised March estimate of 804,000, but is 3.3 percent above the April 2012 rate of 667,000. Single-family housing completions in April were at a rate of 536,000; this is 9.8 percent below the revised March rate of 594,000. The April rate for units in buildings with five units or more was 149,000. Given low inventories of both new and existing homes for sale, along with rising home prices and low mortgage rates, builders should continue to add new housing stock. We learn from the National Association of Home Builders that confidence among their members is increasing, in a metric where readings above 50 denote optimism. Builder confidence in the market for newly built, single-family homes improved three points to a 44 reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May. The metric had been in the single digits during and following the recession, so confidence has improved markedly, even if it is not above the 50 level indicating overall optimism. This gain, from a downwardly revised 41 in April, reflected improvement in all three index components – current sales conditions, sales expectations and traffic of prospective buyers. All three HMI components posted gains in May. The index gauging current sales conditions increased four points to 48, while the index gauging expectations for future sales edged up a single point to 53 – its highest level since February of 2007. The index gauging traffic of prospective buyers gained three points to 33. “Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies,” noted National Association of Home Builders (NAHB) Chairman Rick Judson, a home builder from Charlotte, N.C. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor.” Thus, even with the drop in new housing starts reported in Thursday's report, there are sufficient signs to think gains in homebuilding activity will continue, especially with the big increase in building permits.