Residential starts fell -0.2% and building permits dropped -3.2% in April 2022.
New Home Construction Lost Steam in April
Amid the steepest climb in mortgage rates in decades and ongoing supply-side challenges, residential starts dipped -0.2% to a 1.72M annualized rate in April, according to the latest government data from the US Census Bureau.
Single-family starts plunged -7.3% in April while multifamily starts jumped +15.3%. Meanwhile, applications to build, essentially a proxy for future construction, dropped -3.2% to an annualized rate of 1.82M units.
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Housing completions were down -5.1% m/m to a seasonally adjusted 1,295,000 in April and down -8.6% y/y.
The combination of home builders having to contend with high material prices (+19% y/y), decades-high inflation which is spurring a steep surge in borrowing costs and difficulty in obtaining/securing buildable lots and labor resulted in pushing down homebuilder sentiment in April to the lowest level since June 2020. (See the article posted on this week’s calendar about homebuilder sentiment.)
Demand for New Homes Waning
This slowdown in new home construction activity comes at a time when mortgage rates peaked at 5.593% on May 6 and rates on 30-year fixed-rate mortgages came down 11 basis points to 5.479% as of May 16, according to Optimal Blue Mortgage Market Indices.
Obviously, declining consumer demand in new home construction and increasing interest rates go hand-in-hand.
“New residential construction is running into noticeable headwinds as the Federal Reserve’s monetary tightening, while aimed at curbing runaway inflation, increasingly pushes borrowing costs out of reach for millions of buyers,” said Realtor.com Senior Analyst George Ratiu. “With mortgage rates surging over 200 basis points in the past four months alone, many home shoppers are hitting a hard ceiling on their budgets and demand for new homes is waning as a result.”
Construction Backlogs Climbed to Highest Level in Over 15 Years
This latest Census Bureau report on new home construction indicated that the number of single-family homes authorized for construction but not yet started (backlogged) increased to the highest level since 1974.
New home builders, however, did make headway in having a record-breaking number of 815,000 single-family properties under construction in April, the most since 2006.
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