April Housing Starts Down as Multifamily Pulls Back

April housing starts fell as multifamily developers scaled back new projects, HUD and the Census Bureau reported yesterday.

The report said privately owned housing starts in April fell to a seasonally adjusted annual rate of 1.287 million, 3.7 percent below the revised March estimate of 1.336 million, but 10.5 percent higher than a year ago (1.165 million). Single-family housing starts in April rose by 0.1 percent from March to 894,000; the April rate for units in buildings with five units or more fell to 374,000, down by 12.6 percent from March (428,000), but up by more than 19 percent from a year ago.

Regionally, declines in the West, Northeast and Midwest more than offset a solid gain in the South, where starts rose by 6.4 percent to 663,000 units in April, seasonally annually adjusted, from 623,000 units in March and increased by 16.3 percent from a year ago.

In the West, starts fell by 12 percent in April, seasonally adjusted, to 346,000 units from 393,000 in March but improved by 12 percent from a year ago. In the Midwest, starts fell by 16.3 percent to 164,000 units in Apriil from 196,000 units in March and fell by more than 18 percent from a year ago. In the Northeast, starts fell by 8.1 percent to 114,000 units in April from 124,000 units in March but improved by 34.1 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, said despite volatility in apartment starts, the overall picture appears more promising.

“While the headline figures might raise some concerns about the spring selling season, builders appear to be quite optimistic,” Vitner said. The Wells Fargo/National Association of Home Builders Index rose to 70 in May and has remained at or above that lofty level for most of this year. Home builders report strong demand for new homes across virtually all price points and in most major markets. This spring’s soft headline numbers are mostly due to volatility in apartment starts, which are showing some signs of topping out. An earlier jump in single-family starts in January and February meant that starts were already at a lofty level going into the spring and made it difficult to post large seasonally-adjusted gains.”

Vitner noted both the South and West have benefitted from mild and dry weather, which allowed construction to ramp up earlier than usual. “By contrast, winter weather tended to linger a bit longer than usual in the Northeast and Midwest,” he said.

The report said privately owned housing units authorized by building permits in April fell to a seasonally adjusted annual rate of 1.352 million, 1.8 percent below the revised March rate of 1.377 million but 7.7 percent higher than a year ago. Single-family authorizations in April rose to 859,000; 0.9 percent higher than the revised March figure of 851,000. Authorizations of units in buildings with five units or more fell to 450,000, a 7.4 percent drop from March (486,000) but a 6.4 percent increase from a year ago.

Privately owned housing completions in April rose a seasonally adjusted annual rate of 1.257 million, 2.8 percent higher than the revised March estimate of 1.223 million and 14.8 percent higher than a year ago. Single-family housing completions in April fell to 820,000; 4 percent below the revised March rate of 854,000. The April rate for units in buildings with five units or more rose 425,000, an increase of nearly 19 percent from March (358,000) and an increase of nearly 44 percent from a year ago.

“The annual increase in permits, housing starts and completions sends an optimistic message for the housing market as it signals some relief for the housing shortage,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif. “An estimated seasonally adjusted annualized rate of 1.26 million housing units were completed in April, a 14.8 percent increase from the April 2017 figure of 1.22 million–a modest step toward producing enough housing to meet market demand.”

Vitner said data suggest “a little more life” in the apartment boom, with renewed building in supply constrained markets such as Los Angeles and Denver and increased activity in a smaller markets left out of the previous building boom.

“The supply of new homes and apartments will almost assuredly increase in the coming months,” Vitner said. “The number of single-family homes under construction rose 1.0 percent in April, to 510,000 units, and continues to trend higher. The number of homes in the pipeline still lags considerably behind past building cycles, however. The supply of apartments, on the other hand, appear to be topping out at levels well ahead of the past two cycles.”