| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Starts - Annual Rate | 1.405M | 1.390M to 1.470M | 1.401M | 1.420M | 1.371M |
| Permits - Annual Rate | 1.430M | 1.410M to 1.490M | 1.416M | 1.413M | 1.437M |
Highlights
Starts of new homes rebounded 2.2 percent to 1.401 million units in April from a downwardly revised 1.371 million in March, slightly below the consensus of 1.405 million units in an Econoday survey. Starts plunged 22.3 percent from a year earlier. Both single-family home starts and multi-unit starts increased over the month but posted double-digit declines year-over-year.
Single-family home starts were up 1.6 percent from March, as a 34.6 percent gain in the West and a 32.6 percent advance in the Midwest offset declines of 23.4 percent in the Northeast and 6.3 percent in the South. Starts in the multi-unit sector (total starts less single-family starts) were up 3.2 percent in April, but down 11.5 percent year-over-year, which was still better than the 28.1 percent drop in single-family starts.
The number of permits issued in April decreased 1.5 percent from March to 1.416 million, below Econoday's consensus of 1.430 million, led by declines of 23.6 percent in the Northeast and 15.2 percent in the Midwest. Permits increased 4.3 percent in the South and 3.8 percent in the West. Unlike starts, the multi-unit sector was the weak point, with permits down 7.7 percent, while they rose 3.1 percent for single-family homes. On a 12-month basis, permits were down 21.1 percent, with double-digit declines in both the single-family and multi-unit sectors.
While both starts and permits were below expectations and permits declined, indicative of a weakening activity ahead, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) increased in May for the fifth consecutive month, breaking above 50 for the first time since July 2022. The low supply of existing inventory is the main driver for higher builder confidence. However, building material supply chain disruptions and tightening credit conditions remain a challenge. It remains to be seen which of these conflicting forces will lead activity in months ahead.
Single-family home starts were up 1.6 percent from March, as a 34.6 percent gain in the West and a 32.6 percent advance in the Midwest offset declines of 23.4 percent in the Northeast and 6.3 percent in the South. Starts in the multi-unit sector (total starts less single-family starts) were up 3.2 percent in April, but down 11.5 percent year-over-year, which was still better than the 28.1 percent drop in single-family starts.
The number of permits issued in April decreased 1.5 percent from March to 1.416 million, below Econoday's consensus of 1.430 million, led by declines of 23.6 percent in the Northeast and 15.2 percent in the Midwest. Permits increased 4.3 percent in the South and 3.8 percent in the West. Unlike starts, the multi-unit sector was the weak point, with permits down 7.7 percent, while they rose 3.1 percent for single-family homes. On a 12-month basis, permits were down 21.1 percent, with double-digit declines in both the single-family and multi-unit sectors.
While both starts and permits were below expectations and permits declined, indicative of a weakening activity ahead, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) increased in May for the fifth consecutive month, breaking above 50 for the first time since July 2022. The low supply of existing inventory is the main driver for higher builder confidence. However, building material supply chain disruptions and tightening credit conditions remain a challenge. It remains to be seen which of these conflicting forces will lead activity in months ahead.
Market Consensus Before Announcement
Housing starts in March edged lower to a 1.420 million annualized rate; April is expected to slip further to 1.405 million. Permits, at 1.413 million in March and, though lower than expected, very near the starts rate, is expected to rise to 1.430 million.
Definition
Housing starts measure the initial construction of single-family and multi-family units on a monthly basis. Data on permits provide indications of future construction. A housing start is registered at the start of construction of a new building intended primarily as a residential building. The start of construction is defined as the beginning of excavation of the foundation for the building.
Description
Two words: Ripple Effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.
Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.
The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.
It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.
Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.
Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.
Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.
Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.
The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.
It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.
Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.
Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.
