Given the trajectory of US homebuilder sentiment (which stalled in April and deteriorated in May), it’s no surprise that Thursday’s new construction data was tepid.
Housing starts rose 5.7% last month to a 1.360 million pace, well below the 1.421 million rate consensus expected.
The result looked even more disappointing by reference to a meaningful downward revision to March’s headline. That month’s decline now stands at nearly 17%.
The pace of new construction in April, while elevated by post-GFC standards, counts as subdued in the post-pandemic context.
America’s experiencing an acute (and structural) dearth of affordable housing, and high rates are exacerbating the situation. Although new construction’s helping to fill the void left by sidelined resale supply, builders are by now wholly disenchanted with the persistence of elevated mortgage rates.
Notably, single-family starts slipped again last month after a big drop in March.
The downturn on the NAHB’s gauge of builder moods suggests single-family construction could struggle to reclaim the kind of momentum needed to sate demand. By contrast, multifamily starts rose sharply in April.
On the permits side, the headline showed a 3% decline against expectations for a small gain. Single-family permits fell a third month. Overall, permits ran at the slowest pace since December of 2022, and the third-slowest since the summer of 2020.
Bottom line: Thursday’s update wasn’t constructive (get it?) for supply. Builders’ enthusiasm is waning despite the ostensible opportunity afforded by an acute dearth of resale inventory.
At the end of the day, profits matter most. Construction costs are high and elevated mortgage rates are forcing builders to cut prices and offer incentives to lure stretched buyers. That’s lost margin. The thinner the margins, the less incentive to build. C’est la vie.
Read more: When All You Have Are Builders, Everything Looks Like A Hammer
If I were developing a ground up real estate project today, I would do high-end apartments that are “condo conversion” ready for the future point in time when rates drop.
Always tricky to get everything timed right with real estate development projects, however.
When homebuilders decry high interestrates are they referring to real interest rates? I doubt it. I think there are looking at what the fed did when rates bottomed at record low numbers. From April 1971 thru December 2023, the average 30 year fixed conforming mortage was 7.74%. I believe that rates were too low for too long twice since 2006. There are quite a few moving parts that led to grumpy homebuilders. I was involved with pricing and distributing bonds of many varieties for publicly traded homebuilders in a meaningful way…