Housing starts drop 3.7% in April but stick near 1

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Housing starts drop 3.7% in April but stick near 11-year high

https://www.marketwatch.com/story/housing-sta...5-16/print

By Jeffry Bartash

Published: May 16, 2018 9:53 a.m. ET

Home builders are the busiest they’ve been in years, but rising mortgage rates are starting to pinch.

The numbers: Construction on new houses dropped 3.7% in April, but it’s no big deal. Housing starts hit an 11-year high just a month earlier and some comedown was expected.

The annual rate of new homes being built declined to 1.29 million last month from a revised 1.34 million pace in March that was the strongest since mid-2007. That’s how many homes builders would erect if they maintained April’s pace through the whole year.

Economists polled by MarketWatch has expected starts to total 1.29 million.

Permits for new construction slipped a smaller 1.8% to a 1.35 million annual clip, the government said Wednesday.

What happened: Most of the decline in home construction occurred in the volatile multi-dwelling category — condos, townhouses, apartment buildings and the like.

Single-family starts were barely changed. These homes make up the bulk of the U.S. market for new dwellings.

Starts fell in all regions except the South, where roughly half of all new homes are built each year.

Big picture: The housing market has been growing for years due to low interest rates and the best jobs market in two decades, but rising mortgage rates could be starting to pinch.

The cost of a home loan just hit a seven-year peak, for instance, and that’s contributed to a recent decline in mortgage applications .

Rates are still low by historical standards, though, and a growing economy means there’s still plenty of buyers in a market whose biggest problem is a lack of supply. New home construction is up almost 11% vs. a year earlier but it still hasn’t been enough to keep up demand.

Builders might be understandably cautious even a decade after the worst industry slump since the Great Depression, but there’s a simpler explanation: There’s a shortage of skilled laborers and no sign it will abate soon, especially with tighter restrictions on immigration.

What they are saying?: “Despite rising mortgage rates and higher prices reducing affordability, solid job gains and improving demographics should push both new home sales and housing starts up in 2018 to the highest levels of the expansion,” said David Berson, chief economist at Nationwide.

Market reaction: The Dow Jones Industrial Average DJIA, +1.04% and Standard & Poor’s SPX, +0.82% rose slightly in Wednesday trades. The 10-year Treasury yield TMUBMUSD10Y, -0.07% was flat at 3.01%.

Shares of home builders such as D.R.Horton DHI, +2.39% and Taylor Morrison Home Corp. TMHC, +2.22% were little changed, but they have fallen off their 52-year highs in part because of rising mortgage rates.

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