US home building increased in April, reversing March’s decline, a new government report found, but lingering challenges are still hampering the production of new homes.
Housing starts, which include new construction of both single and multi-family units, rose 2.2% to a seasonally adjusted annual rate of 1.401 million units in April, according to the Census Bureau Wednesday, from March's revised rate of 1.371 million. That was 22.3% below a year ago and just a hair above the 1.400 million units economists surveyed by Bloomberg had forecast.
Applications to build decreased to 1.5% to an annualized rate of 1.416 million units in April from a revised 1.437 million the prior month, with a steep drop in multifamily permitting more than offsetting the increase on the single-family side. The figure was down from the Bloomberg consensus expectation of 1.430 million.
The improvement in starts and permitting among single-family home construction is a slight relief for homebuyers challenged by low for-sale inventory. Still, the acceleration is not yet enough to mend the housing shortage, a problem that has snowballed over a decade.
“My team’s estimate on the housing shortage is about 1.5 million homes,” National Association of Home Builders Chief Economist Robert Dietz told Yahoo Finance. “We need to be building more than 1.1 million single-family homes a year to meaningfully reduce that deficit.”
Single-family housing starts in April increased 1.6% from March to a seasonally adjusted annual rate of 846,000.
At the same time, building permits for single-home construction increased to a seasonally adjusted annual rate 855,000, up 3.1% from March's revised rate of 829,000.
On the multi-family side, starts in April increased 5.2% to a seasonally adjusted annual rate of 542,000 from 515,000 in March.
Building permits for multifamily construction dropped 9.7% to a seasonally adjusted annual rate 502,000 from 556,000 in March.
New single-family homes are an even more crucial component to the housing market now.
According to Dietz, the lack of existing homes on the market has driven more buyers toward new construction. More than a third of homes on the market in April were new construction, the National Association of Home Builders estimated, when that share is typically 13%.
Overall, there was less than a three month supply of resale inventory, the National Association of Realtors said. Six months of supply is considered a balanced market.
The imbalance has helped to prop housing confidence among builders, which hit its highest point in 10 months in May. The limited re-sale inventory gave developers an added edge, allowing them to cut back on price reductions and other inducements.
Builders still face some headwinds.
“I’ve been calling the supply side issues the five L’s,” Dietz said, ticking off lack of labor, lack of land, lending challenges, legal/regulatory burdens, and lack of lumber/building materials.
According to Dietz, build time took as long as 8.5 months due to supply chain issues last year, up from the typical 6-7 months.
The recent banking turmoil that’s impacted regional banks has only worsened the lending environment, with developers facing tighter credit conditions in addition to the Federal Reserve’s year-long interest-rate hiking campaign.
“We’re not talking about mortgages, we’re talking about builder and developer lending and land to undertake construction projects,” he said. “That is going to be something we’re going to be watching going forward.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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