Economic Report: Housing starts climb almost 6% in April, but construction still lags last year’s pace

Workers build a new home in Dublin, California. Construction rose almost 6% in April as the spring buying season got underway.

The numbers: Construction on new houses rose almost 6% in April, but builders still lagged behind last year’s pace despite a big drop in mortgage rates with the busy spring buying season in full throttle.

Housing starts increased to an annual rate of 1.24 million last month, the Commerce Department said Thursday. Economists polled by MarketWatch has expected starts to rise at a 1.21 million pace.

Permits to build new houses, meanwhile, rose less than 1% in April to a 1.3 million annual rate. That suggests builders are unlikely to sharply speed up construction beyond current plans.

Both housing starts and permits are running below last year’s pace.

What happened: Single-family home starts advanced 6.2% to a 854,000 rate. These represent the bulk of new homes being built and sold.

Work on multi-dwelling units with five or more units, which are usually rented, rose a smaller 2.3% to a 359,000 rate. That type of new construction can swing sharply from month to month.

New construction in March was revised higher to a 1.17 million rate vs. an originally estimated 1.14 million.

Big picture: A steady increase in home construction since the end of the Great Recession a decade ago can’t disguise perhaps the most anemic era in the industry’s modern history.

The National Association of Home Builders thinks the industry should be producing 1.1 million single-family homes a year to keep up with population growth and demand. But it forecasts fewer than 880,000 starts in 2019.

Some temporary relief appears to be on the way, though. Mortgage rates have fallen sharply since last fall, making it more attractive for prospective home owners to jump back into the market.

Builder sentiment, often seen as a signal of future starts activity, perked up in May.

What they’re saying: “Single-family starts drove the bulk of the strength, in line with the rebound seen in new home sales lately,” said CIBC’s Katherine Judge on Thursday. “That segment adds more value to GDP on a per-unit basis, a positive for residential investment. However, the slight acceleration in the pace of building permits to 1.296 million was driven entirely by the multi-family segment, suggesting that the strength in building of singles could be fleeting. Still, today’s report confirms that the US housing market is on healthier footing, having moved off of the lows seen in recent months.”

Market reaction: Shares of big publicly-traded home builders have outperformed the broader stock market DJIA, +1.00% this year. For the year to date, D.R. Horton DHI, +1.95%   shares have gained 27%, while PulteGroup Inc. PHM, +1.71%   shares have risen 23%.

Read: Up 26% so far this year, are home builder stocks too frothy?

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