Five Takeaways From the Latest Housing Starts Report
Nick Timiraos | Wall Street Journal | May 16, 2013 | link
- European Pressphoto Agency
- New homes under construction in Atlanta in April.
Housing bears and housing bulls each had something to boost their spirits in Thursday’s report on new-home construction. Housing starts fell by 16.5% in April to their lowest level since last November, but as is often the case, the headline number masked a few important nuances. Here are five takeaways:
1. The April drop was due primarily to the often-volatile multifamily sector. Starts of single-family homes fell by 2.1% from March’s level, and stood 20.8% above the year-earlier level. Multifamily construction, which had posted a 26.9% gain in March from February, posted an even larger 37.8% drop in April from March. The drop-off in multifamily construction should, for the moment at least, ease fears of an apartment-construction bubble.
2. Permit activity was strong. This is important, both because permits are subject to less jarring revisions than housing starts, and also because permit activity is a fairly reliable indicator of starts. Permits jumped to their highest level since June 2008 at a seasonally adjusted annual rate. Single-family permits rose to their highest level since May 2008.
3. The slowdown in single-family home construction isn’t necessarily a slowdown in the housing market. The seasonally adjusted annual rate of 610,000 units in April, is the lowest level of the year, but rather than signal a drop in demand, it could instead reflect supply and cost pressures facing builders, as rising land, labor and materials costs eat into their margins. Some home builders have said they’re building in fewer communities—putting up fewer homes—in order to boost prices. If there’s a negative in today’s report, it’s that the inventory crunch in many markets isn’t going to subside as long as builders don’t build more homes.
4. If starts are low, and inventory stays tight, there could be more room for price gains this year. At the beginning of the year, some analysts believed that inventory of homes for sale could pick up amid a rebound in home construction and higher prices that induced more homeowners to sell. While there are some signs of the latter, the inventory pressures haven’t eased much in many of the most constrained markets. This means prices could continue to rise.
5. The upshot is that Thursday’s housing report isn’t as much a signal that the sector is cooling—at least not until there are a few more of these reports—and instead a sign that the housing rebound isn’t going to unfold in a straight line.