After dropping significantly in March, April’s reading of housing starts and permits from the U.S. Census Bureau [1] reported further declines.
April saw housing permits fall by 20.8%; housing starts declined by 30.2%; and completions fell by 8.1% for the month.
Housing starts fell 43.6% in the northeast month-over-month and the west reported a 43.4% decline from March. The number of homes completed fell annually by 11.8%.
Holden Lewis, Home and Mortgage Specialist at NerdWallet, said April’s drop is associated with the uncertainty of whether or not buyers will return to the market later this year.
“On top of that, they have to guess about the availability of construction workers in the next few months. This will exacerbate the housing shortage that many places suffer from. With fewer houses being built, there will be less opportunity for today's homeowners to move up and sell to first-time buyers,” he said.
Single-family starts in April (650k) was at the lowest annualized pace since first quarter of 2015, but the decline was not as large as initially forecasted. Home building being deemed an essential business for much of the country clearly helped.
— Robert Dietz (@dietz_econ) May 19, 2020 [2]
Odeta Kushi, Deputy Chief Economist at First American Financial Corporation, said April’s housing data reflects the “depth and severity” of an economy put into a “medically-induced coma.”
“Housing starts data is no exception, as permits, starts, and completions fell by double digits relative to one year ago,” Kushi said. “Today’s numbers indicate less supply may be on the market to meet a late-blooming home-buying season.”
The lone bright spot is that homebuilder confidence increased [3]in May after April’s record-breaking decline. Builders, Kushi said, are responding to low mortgage rates and a rise in purchase applications, possibly indicating potential home buyers are back in the market to buy.
“Looking ahead, housing starts are a strong indicator of future demand because homebuilders are reluctant to break ground on new projects if they fear there will be no one there to buy it. All signs in the housing market are pointing to a rebound, and monitoring home builder activity will be key to gauging the recovery: if you’ll buy it, they will build it,” she said.
Realtor.com Senior Economist George Ratiu said April's data "shouldn't come as a big surprise" after April's National Association of Homebuilders/Wells Fargo Housing Markt Index posted the largest monthly drop in its history.
"Over the past week, quarantine restrictions continued to loosen across the country, with most states partially reopening. In addition to a sobering number of lives lost from the coronavirus, the economic toll from the past two months is staggering. The number of jobs lost just in April rivals the number of jobs created during the past 10 years combined," he said.
He added the remainder of 2020 remains a question mark as the outlook is uncertain.
"The silver lining to the cloudy horizon is the fact that a growing number of companies have extended the work from home policies until 2021, which has driven demand for more home space, as buyers look at more affordable housing options [4], away from expensive urban cores. For homebuilders, there are opportunities to match an updated product with shifting buyer preferences," he said.