Housing Starts Ebb in Spring

By Yelena Maleyev, Economist, Grant Thornton

New home construction, known as housing starts, fell in April after March activity was revised lower. Losses in construction were concentrated in single-family homes; multifamily starts jumped to a 36-year high. The total number of units (single and multi) currently under construction hit a record high at 1.64 million; that is largely due to unprecedented backlogs in the home building sector.

Single-family starts fell 7.3% to 1.1 million units in April. All regions except the West saw construction soften. Compared to a year ago, single-family construction is 3.7% higher; however, growth is expected to slow due to rapidly climbing mortgage rates. Since the start of the year, mortgage rates have risen an average of 2 percentage points and experienced the fastest annual growth. A recent Gallup poll showed that those saying it is a “good time to purchase a home” slipped to the lowest level on record; the survey covers the stagflation of the 1970s and the Volcker recessions of the early 1980s when mortgage rates jumped well into the double digits.

Multifamily starts soared 16.8% to 612,000 in April, the highest pace since 1986. Activity was strongest in the South, the largest housing market in the country. Many people flooded the South since the start of the pandemic, which is why most markets in this region have experienced the largest home price increases on record. As mortgage rates rise, more people are remaining renters; builders are taking notice.