Warning flags for home construction

Total housing started at an annual rate of 1.724 million in April, down 0.2 percent from 1.728 million in March. Since a year ago, total start-ups have risen 14.6 percent. Total housing permits also declined in April, to 1.819 million, down 3.2 percent from 1.879 million in March. Total permits rose 3.1 percent from the April 2021 level.

The dominant single-family segment posted a rate of 1.100 million in April versus 1.187 million in March, down 7.3 percent but still 3.7 percent higher than a year earlier (see first chart). Single-family permits fell 4.6 percent to 1.110 million from 1.163 million in March (see first chart).

Multi-family structures with five or more units started 16.8 percent higher at 612,000 and 42.3 percent higher than last year, while the two- to four-family-unit segment started 29.4 percent lower at 12,000-unit speed in March compared to 17,000. Collectively, the multi-family start-up grew 15.3 percent in April to 624,000 and is up 40.5 percent from a year earlier (see first chart).

Multifamily permits for 5-or-more groups fell 0.6 percent to 656,000, while permits for two- to four-unit units fell 5.4 percent to 53,000. Collectively, the multifamily permit was 709,000, a 1.0 percent discount for the month but 15.7 percent higher than a year earlier (see first chart).

Meanwhile, the National Association of Home Builders Housing Market Index, a measure of home builders’ attitudes, fell again in April, to 69 vs. 79 in April, and fell sharply from its recent highs of 84 in December 2021 and 90 in November 2020. Rising mortgage rates, improved home prices, and higher input costs are major concerns (see Chart 2).

All three components of the housing market index declined sharply in April. Expected single-family sales index fell to 73 from 63 in the previous month, current single-family sales index dropped to 86 to 78 in April, and potential buyer index traffic dropped to 61 from 52 in the previous month (see second chart).

Input costs are a concern for manufacturers. The cost of basic input materials is declining from the top but is still rising Wood coming in at about $ 780 per 1,000 board feet in mid-May, down from about 7 1,700 in May 2021 and $ 1,500 in early March 2022 while copper is down slightly to $ 9,400. Tons (see third chart). Higher input costs will push builders’ profits and cause further price increases for new homes (see Chart 4).

Furthermore, mortgage rates have recently risen, with a 30-year fixed rate mortgage rate of 5.30 percent in mid-May, nearly twice as low in early 2021 when home prices are at record-high levels (see Chart 4). Could be significant headwind for.

While the implementation of permanent remote work arrangements for some employees may provide continued support for housing demand, the record-high house prices combined with rising mortgage rates will likely serve to cool activity in the coming months. The threat of future demand combined with higher input costs is drowning out the attitude of homebuilders. The outlook for housing, especially in the single-family segment, is rapidly deteriorating.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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