The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction declined significantly. New housing starts were down from an annualized 1,036,000 units in March to 853,000 units in April. These numbers illustrate the choppiness of the housing market from month-to-month that occurs even with seasonally-adjusted data. While the longer-term trend line remains positive (up 13.1 percent year-over-year), it is hard not to say that the construction figures were not disappointing.
The largest factor behind the decline in housing starts was the plummeting of multi-family housing starts, down from 398,000 in March to 243,000 in April. These declines appear to have taken place in all regions of the country except for the Midwest. Multi-family starts nationally are now slightly lower than they were 12 months ago, reversing the healthy gains seen in recent months. Meanwhile, new single-family construction starts decreased less dramatically, down from 623,000 to 610,000. These losses were primarily in the South. The year-over-year pace for single-family starts is still quite impressive, up 20.8 percent.
At the same time, housing permits soared to 1,017,000 annualized units in April from 890,000 in March. The permits data are important because they serve as a proxy for future construction activity, and as such, they allow us to get less worried about the declines in starts. The good news is that this is the first time that housing permits have been above 1 million since June 2008 (when they were headed lower). The year-over-year growth in housing permits between April 2012 and April 2013 was a very healthy 35.8 percent.
The largest gainer for housing permits was the increase in multi-family unit activity, up from 291,000 to 400,000, its fastest pace since (not coincidently) June 2008. Single-family permitting rose from 599,000 to 617,000.
Overall, these data continue to show an upward trend in housing, even as the latest new starts data are discouraging. The fact that housing permits grew so strongly is an indication that April’s housing starts levels should be a temporary pullback, with a slow-but-steady growth in the sector progressing forward. I would expect that housing starts should return to being over 1 million units in the coming months, and this time, they will stay there.
One other factor that helps me remain positive was the rebound yesterday in the National Association of Home Builders (NAHB) Housing Market Index (HMI). After peaking at 47 in December and January, the index has been in a lull the past few months, falling to 42 in April. In the May survey, the HMI rose to 44, a sign that home builder confidence rose slightly for the month. Even with the recent easing, builder sentiment has risen steadily over the past couple years, with the HMI measuring 16 in May 2011 and 28 in May 2012.
Optimism increased in each region of the country except for the West, and the indices for current and future potential sales of single-family homes rose. In fact, the index of expected single-family home sales in the next six months increased from 52 to 53, and it has been above 50 in eight of the past nine months. Values over 50 indicate that more respondents are positive than negative in their views.
NAHB Chief Economist David Crowe added, “While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders’ views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force.”
Chad Moutray is the chief economist, National Association of Manufacturers.