April construction figures offer rosy forecast for single-family production

Builder confidence hits key milestone for first time since last summer

One day after a report of builder confidence reaching a key milestone, new construction figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) are offering encouraging evidence that residential building — especially on the single-family front — continues to find its footing.

The Census Bureau and HUD reported that overall housing starts grew 2.2% to a seasonally adjusted annual rate of 1.40 million units in April, still down 22.3% annually but up 2.2% from March. Both single-family and multifamily starts saw monthly gains, with single-family starts up 1.6% to a seasonally adjusted annual pace of 846,000 and multifamily up 3.2% to an annualized rate of 555,000 units.

Single-family starts remain down 28.1% year over year, but with the scant supply of existing homes casting a renewed spotlight on new construction, builders see promise ahead. According to the Housing Market Index (HMI) jointly tracked by the National Association of Home Builders (NAHB) and Wells Fargo, builder confidence increased five points to a reading of 50 in May. It’s the fifth straight gain for the HMI, bringing builder sentiment to the 50-point mark for the first time since July 2022.

The uptick in single-family starts was accompanied by a 3.1% monthly increase in single-family permitting, the third straight improvement in the subsector.

“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,” NAHB chair Alicia Huey said. “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.”

In contrast, multifamily appears to be seeing a slight downshift despite the month-over-month gain. Multifamily permitting fell for a second straight month, hitting its lowest point since July 2021. While apartment market fundamentals remain healthy, a surge of new supply in many areas has helped tamp down demand, and Wells Fargo economists foresee a further multifamily construction downshift in the near term with more units in the construction pipeline.

“Multifamily permits are down 23% year over year, and this indicates a slowdown for apartment construction is underway due to a tighter lending environment,” NAHB chief economist Robert Dietz said. But Dietz also noted that optimism regarding moderation of the Federal Reserve policy of market tightening has ushered in expectations of lower rates, leading to even more gradual improvement in single-family building.


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