Home builders slowed construction on single-family homes much more than anticipated in April as inflation pushed up costs and rising mortgage rates made homes less affordable.
Home builders broke new ground on new single-family homes at a seasonally adjusted annual rate of 1.1 million in April, a 7.3 percent drop from the downwardly revised March rate, data from the Census Bureau showed Wednesday.
The figures for February and March were revised down sharply. February single-family starts were taken down to 1.213 million from 1.221 million. March’s single-family starts went from 1.2 million to 1.87 million.
The April figure is 8.3 percent less than the March figure prior to the revision and nearly 10 percent below the February preliminary figure. That illustrates how big the slowdown in construction has been over the last few months.
The single-family market is most sensitive to interest rates. In April, rates on the traditional 30-year fixed mortgage climbed sharply, rising from 4.67 percent a the end of March to 5.412 percent at the end of April. Rates have since continued to climb and now sit at around 5.25 percent. Higher mortgage rates combined with high prices have put home purchases out of reach for some U.S. families, particularly younger and first-time would-be buyers.
The total starts figure fell by 0.2 percent to 1.724 million from a downwardly revised 1.728 million. Economists had forecast 1.765 million following the preliminary report of 1.793 million for March.
March’s figure had come as an upside surprise compared to forecasts for 1.75 million. After the revision, it now appears that March’s starts were actually lower than expected.
Construction of multifamily units climbed by a steep 16.8 percent in April compared with March. This part of the housing market is considered much less sensitive to mortgage rates. Compared with a year ago, multifamily starts are up 42.3 percent.
Permits, a leading indicator of future home building, declined sharply. Total permits fell 3.2 percent compared with March, single-family permits were down 4.6 percent, and multifamily declined by 0.6 percent.
On Tuesday, the National Association of Home Builders reported that home builder confidence fell to the w0rst level since June 2020.
Home builders have been hit by inflation in the costs of building materials, shortages of some materials, a tight labor market, and rising interest rates making homes less affordable to buyers.
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