US housing starts, permits fall short as mortgage rates rise

New US home construction rose by less than forecast in April and permits for new activity dropped, suggesting the recent rise in mortgage rates is giving builders pause.

Housing starts increased 5.7% to a 1.36 million annualized rate after downward revisions to prior months, according to government data released Thursday. The median forecast in a Bloomberg survey of economists called for a 1.42 million rate.

Authorized permits for single-family home construction have now dropped for three straight months to the lowest level since August after trending higher toward the end of last year. That may constrain beginning home construction going forward.

Building permits for all units, a proxy for future construction, fell 3% to a 1.44 million rate, the lowest since the end of 2022. That mostly reflected a large drop in authorizations for apartment complexes.

Data at the start of the year indicated inflation was proving stubborn, prompting traders to pull back bets on when the Federal Reserve would cut interest rates this year and therefore keeping mortgage rates above 7%.

But figures Wednesday showed consumer price growth eased in April, and additional readings may help give policymakers the confidence they need to start lowering borrowing costs. That may help boost homebuilder sentiment as well.

What Bloomberg Economics Says…

“Even with inventories of existing homes low, there remains an opportunity for homebuilders to meet housing demand generated by family formation. But higher construction and financing costs are creating headwinds for housing activity.” — Stuart Paul

The number of completed single-family homes climbed to a 1.09 million annualized rate, the most since November 2022. That may explain the softer advance in new groundbreaking activity.

Starts of multifamily projects that include apartments jumped nearly 31%, while single-family homebuilding fell slightly.

The government’s housing starts report showed new construction fell sharply in the Northeast but rose in the South and Midwest. They dropped in the West, too.

The housing starts data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 5.3% decline to a 16.7% increase.

The April report included seasonal revisions for starts, permits, homes under construction and completions going back several years.