Housing starts rose 5.7 percent to 1.360 million units in April on a seasonally adjusted annual basis after 1.287 million units in March. The level is down 0.6 percent compared to 1.368 million units in April 2023. The report includes annual revisions. The April level is well below the consensus of 1.435 million units in the Econoday survey of forecasters. At present, homebuilding is being supported by limited inventories in the existing home market, but is also feeling the effects of affordability with both prices and mortgage rates broadly higher.

The Freddie Mac monthly average rate for a 30-year fixed rate mortgage rose in March to 6.82 percent and climbed to 7.04 percent in April. For May to date, the average rate is 7.09 percent, although it has eased a bit on a weekly basis in the past two weeks.

The increase in April housing starts was entirely due to a 30.6 percent jump in starts of multi-unit housing to 329,000 in April from 252,000 in March. Multi-unit starts are down 33.1 percent compared to 492,000 in April 2023. Month-to-month starts of multi-unit housing can be volatile. The April increase is probably a correction after the sharp decline of 38.8 percent in the prior month. Homebuilders may be seeing more potential buyers looking at the multi-unit market as a more affordable option in purchasing a home.

Single-family housing starts fell 0.4 percent in April to 1.031 million units but were up 17.7 percent compared to 876,000 a year ago. The month-over-month change is negligible and does not change the assessment that homebuyers are looking at new construction while existing inventory is limited and the most sought-after units fiercely competed for. Homebuilders are cautious about starting new units without a closed contract, but also face some challenges in finding suitable building land, and getting the materials and labor needed to build.

The number of permits issued in April fell 3.0 percent to 1.480 million units after 1.485 million units in March, and was down 2.0 percent from 1.470 million units a year ago. The April level is somewhat below the consensus of 1.480 million. Permits for single-family units fell 0.8 percent to 976,000 in April from 984,0900 in March, but were up 11.4 percent from 876,000 in April 2023. Multi-unit permits issued fell 7.4 percent to 464,000 in April after 501,000 in March, and were off 21.9 percent t from 594,000 a year ago.

Although the pace of permits issued is down somewhat as the housing market is seeing another chill from mortgage rates over 7 percent, demand for new single-family homes the bulk of new construction has not fallen drastically. As long as supplies of existing homes remain lean, builders will find opportunities.

Housing starts in April are expected to rebound to a 1.435 million annual rate versus March's much lower-than-expected 1.321 million rate. Permits, at 1.458 million in March which was also lower than expected, are expected to rise to a 1.480 million rate.

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.

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.