Housing starts in the U.S. increased by 2.2% MoM to reach an annualized rate of 1.4 million in April. According to data from the U.S. Census Bureau, single-family homebuilding starts increased by 1.2% MoM. The increase in housing starts is expected to boost the housing market after a yearlong slump.
Chief U.S. economist at High Frequency Economics, Rubeela Farooqi, said: "While elevated mortgage rates and affordability concerns remain headwinds for housing, a lack of inventories could support building activity over time."
The current inventory of existing homes in the market for sale is at a historic low. The total inventory for sales in April declined by 48.3% compared to 2022. The inventory growth rate slowed for the second successive month as sellers continued to feel discouraged from listing their properties for sale because of rising interest rates. Though the Federal Reserve indicated its plans to pause the rate hikes next month, it is still unclear how long the rates would remain elevated.
The U.S. homebuilder sentiment, tracked by The National Association of Home Builders (NAHB)/Wells Fargo, jumped five points to reach 50 in May, the highest level in the past ten months. However, it is still below the levels seen at the end of 2021. NAHB's chief economist, Robert Dietz, said one-third of homes listed in March were new projects that were in various stages of construction, increasing almost three times from the past decade's average.
Single-family building permits increased by 3.1% to a seasonally adjusted annual rate of 855,000 units, the highest since September. The rise in single-family permits was led by the West with a 60% increase. Permits for multi-family units plunged by 9.7% to 502,000 units, the lowest since Dec. 2020. This significant decline led overall permits to drop by 1.5% to 1.416 million units. The number of homes completed declined to an annualized rate of 1.38 million.
Industry experts commented that builders are taking advantage of this low inventory of existing homes, and some are offering financial incentives to prospective buyers to address affordability concerns.
Fannie Mae's Economic and Strategic Research Group mentioned in its May economic outlook that demand is shifting towards the new home market. The report noted affordability constraints, a low supply of homes, and the lock-in effect are likely to keep sales down for the rest of this year. Fannie Mae believes sales will soften later in the year and forecasts a modest recession in the second half of this year. The report assumed the current debt crisis would be resolved and avoid a government default.