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May 18, 2022

U.S. housing starts fall in April; building permits tumble

U.S. homebuilding fell moderately in April, but a sharp decline in permits pointed to a slowdown in the housing market amid rising mortgage rates, which are contributing to reducing affordability for entry-level and first-time buyers.

Housing starts slipped 0.2% to a seasonally adjusted annual rate of 1.724 million units last month, the Commerce Department said on Wednesday. Data for March was revised lower to a rate of 1.728 million units from the previously reported 1.793 million units. Economists polled by Reuters had forecast starts declining to a rate of 1.765 million units.

Permits for future homebuilding dropped 3.2% to a rate of 1.819 million units.

A survey on Tuesday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index dropped to the lowest level in nearly two years in May.

Builders blamed the fifth straight monthly decline in sentiment on soaring prices for building materials as well as rapidly rising mortgage rates, which were squeezing entry-level and first-time homebuyers from the market.

The 30-year fixed-rate mortgage averaged 5.30% during the week ended May 12, the highest since July 2009. It has increased by more than 100 basis points since mid-March when the Federal Reserve started raising interest rates to cool demand and bring down sky-rocketing inflation.

The U.S. central bank has hiked its policy interest rate by 75 basis points since March. The Fed is expected to increase that rate by half a percentage point at each of its next policy meetings in June and July.

But homebuilding remains underpinned by a record low housing supply. There is a massive backlog of houses approved for construction that are yet to be started. Investment in homebuilding grew moderately in the first quarter. (Reporting by Lucia Mutikani Editing by Chizu Nomiyama)

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