Rising Homebuilding Costs Will Weigh on Construction Activity

• Housing starts in April fell 9.5% to 1.569 million annualized units, much worse than consensus expectations for a 2.0% fall.
• Housing permits in April edged up 0.3% to 1.760 million annualized units, slightly lower than consensus expectations for a 0.6% increase.
• Supply chain bottlenecks and rising homebuilding costs will weigh on construction activity in the near term, but housing should remain strong this year.

Housing starts fell 9.5% from March to 1.569 million annualized units, worse than consensus expectations for a 2.0% decrease to 1.704 million annualized units. Starts in March were revised slightly lower to 1.733 million annualized units, from 1.739 million annualized units.

Single-family starts fell 13.4% in April to 1.087 million annualized units. Multifamily (apartment and condominium) starts edged up 0.8% in April from March to 482,000 annualized units; multifamily starts tend to be more volatile than single-family starts.

Residential construction permits edged up 0.3% to 1.760 million annualized units in April; March permits were revised lower to 1.755 million annualized units from 1.766 million annualized units. Single-family permits fell 3.8% in April to 1.149 million annualized units. Multi-family permits advanced 8.9% in April to 611,000 annualized units. Housing completions were down 4.4% in April from March to 1.449 million annualized units.

Despite the decline in starts, the housing sector should remain strong this year. Housing fundamentals are good. Mortgage rates are low, consumer balance sheets are solid, and there’s a growing demographic of potential home buyers. Builder confidence has been well above the 50-point threshold since July.

However, supply chain bottlenecks and rising homebuilding costs will weigh on construction activity in the near term. Lumber prices climbed 90% on a year-over-year basis in April; steel mill products prices surged 67% in April from a year ago; aggregate residential construction costs were up 12% in April from a year ago, according to the National Association of Homebuilders. 

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