Economic Indicators

U.S. Housing Starts Fell in April but Stayed Close to Historic Highs

By Geoffrey Smith — U.S. housing starts fell in April, but remained at historically high levels, despite growing signs that higher prices and rising mortgage rates are hurting the affordability of home purchases.

Housing starts edged down to 1.724 million last month, below analysts’ expectations. Equally important was the downward revision to the figures for March – to 1.728 million from an initial estimate of 1.793 million.

Even at that slightly lower level, new construction is still taking place at a rate not seen since the subprime mortgage boom 15 years ago.

However, the overall figures again illustrated a divergence in trends between single-family home construction and multi-unit construction, with the former weakening more than the latter. That indicates a continuing preference to build the kind of homes that are rented rather than bought, suggesting that more prospective buyers are being priced out of the market. Single-family housing starts fell 7.3% on the month and are now up only 3.7% on the year, while starts for projects with more than five units were up 16.8% from March and are now up 42.3% from April 2021.

Building permits, the more forward-looking indicator of housing market activity, also remained strong in absolute terms in April, despite falling to a five-month low at 1.819 million. While that was slightly lower than the 1.879 million issued in March, it was slightly above expectations.

The numbers come on the same day that the Mortgage Bankers’ Association said mortgage applications fell by 11% last week, against a backdrop of a surge in long-term interest rates. The benchmark MBA 30-year interest rate edged down to 5.49% from 5.53% last week but is still up by over 2 percent since the start of the year.

“The housing market is looking increasingly vulnerable with a price correction possible,” James Knightley, chief international economist with ING, said in a note to clients, pointing out that house prices have risen an average of 35% across the country since the start of the pandemic. 

Knightley pointed to the sharp drop in sentiment evident in the National Association of Home Builders report earlier in the week, which cited “affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation” as all taking their toll on buyer demand.


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