Fannie Mae, NAHB, and other industry stakeholders give their view
New home starts trended upward in April after a pullback in March, but industry experts remained concerned that affordability and supply shortage issues could be holding back the momentum of housing production.
Privately‐owned housing starts increased 2.2% month over month to an annualized rate of 1.4 million units in April, the Census Bureau reported Wednesday.
Within this overall figure, single-family housing starts rose to 846,000 units, a 1.6% gain from the downwardly revised March reading of 833,000. The multifamily sector, which includes apartment buildings and condos, posted a 3.2% increase to an annualized 555,000 pace.
“Single-family starts are showing gradual improvement from the beginning of the year, and this is reflected in our builder sentiment surveys, which are up for five consecutive months,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “Due to a lack of inventory for resales, we expect to see further improvement for single-family production in the months ahead even as builders continue to grapple with supply-chain and labor shortages.”
Kelly Mangold, principal at RCLCO Real Estate Consulting, noted that affordability headwinds have pushed builders to adjust their offerings to appeal to a more moderate price point.
“Smaller floorplans and slimmed-down finish packages allow for more palatable pricing in today’s high-interest environment,” Mangold said. “There is a lack of inventory in the resale market because would-be sellers are staying put to retain their attractive mortgage rates. Therefore, the increase in starts is poised to provide welcome relief for a constrained for-sale housing market, and the limited supply of resale inventory has made new homes an appealing option for motivated buyers.”
“There remains a downside risk, though, as we continue to expect the economic backdrop to weaken and many smaller homebuilders are likely facing tighter construction loan credit amid the fallout from recent banking turmoil,” Fannie Mae chief economist Doug Duncan added. “Additionally, the market has consistently underestimated the Fed’s resolve on lowering inflation to its target level, so a further resurgence of interest rates cannot be ruled out; if this occurs, we believe the current strain on affordability could worsen and work to suppress future demand.”
Overall, building permits dropped 1.5% to a 1.42 million annual rate in April. Single-family permits were up 3.1% to an 855,000-unit rate, while multifamily permits fell 7.7% to an annualized 561,000 pace.
“We are likely to upgrade our near-term starts forecast as the steady upward trend in permits since January is consistent with a tight inventory of existing homes pushing buyers toward the new home market,” Duncan said. “Additionally, recent Q1 earnings calls from public builders have been more optimistic than earlier in the year, and the National Association of Home Builders’ Housing Market Index rose five points in May to return to a ‘neutral’ outlook of 50 for the first time since July 2022.”
The number of single-family homes under construction declined 16% to 698,000, down from a peak total of 831,000 in May 2022. Meanwhile, the number of apartments under construction jumped to a record high of 977,000.
“As the Federal Reserve nears the end of its tightening of financial conditions, we expect mortgage rates to moderate in the months ahead, and this will lead to a gradual improvement in single-family production,” said NAHB chief economist Robert Dietz. “Multifamily permits are down 23% year-over-year, and this indicates a slowdown for apartment construction is underway due to a tighter lending environment.”
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