Single-Family Starts Show Gradual Improvement in April

A lack of existing inventory and stabilizing mortgage rates helped push single-family production up to the highest rate thus far in 2023 even as builders continue to deal with high construction costs, persistent labor shortages and tightening credit conditions for construction loans.

Overall housing starts in April increased 2.2% to a seasonally adjusted annual rate of 1.40 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The April reading of 1.40 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 1.6% to an 846,000 seasonally adjusted annual rate. However, this remains 28.1% lower than a year ago.

Single-family starts are showing gradual improvement from the beginning of the year, and this is reflected in the NAHB/Wells Fargo HMI, which has increased every month of 2023 and reached the key break-even level of 50 in May. As the Federal Reserve nears the end of its tightening of financial conditions, we expect mortgage rates to moderate in the months ahead, and this will lead to a gradual improvement in single-family production.

The multifamily sector, which includes apartment buildings and condos, increased 3.2% to an annualized 555,000 pace.

On a regional and year-to-date basis, combined single-family and multifamily starts were 8.9% lower in the Northeast, 29.5% lower in the Midwest, 15.9% lower in the South and 29.7% lower in the West.

Overall permits decreased 1.5% to a 1.42 million unit annualized rate in April. Single-family permits increased 3.1% to an 855,000 unit rate, but are down 21.2% compared to a year ago. Multifamily permits decreased 7.7% to an annualized 561,000 pace. Multifamily permits are down 23% year-over-year, which is an indication of a slowdown for apartment construction in 2023 due to a tighter lending environment.

Looking at regional permit data on a year-to-date basis, permits were 27.2% lower in the Northeast, 28.2% lower in the Midwest, 18.7% lower in the South and 28.6% lower in the West.

The number of single-family homes under construction in April fell to 698,000, down 16% from a peak total of 831,000 in May 2022. There are now 977,000 apartments under construction, which is the highest level since September 1973.