On the same day that mortgage applications plunged 12% and one day after homebuilder sentiment for the month of May showed a large decline, the latest updates on Housing Starts and Building Permits showed a mixed picture. While economists were expecting both reports to decline, the drop in Housing Starts was more than expected while the decline in Building Permits was slightly less than forecast.
The table below breaks down this month’s report by type of unit and region and shows both the m/m and y/y changes. For Housing Starts, the 0.2% m/m decline was driven entirely by single-family units (-7.3%) while multi-family units surged 15.3%. With respect to Building Permits, we saw a similar breakdown although the disparity wasn’t nearly as large as single-family units dropped 4.6% while multi-family units declined just 1%. On a regional basis, the Northeast and Midwest experienced 20%+ declines on a m/m basis while every region except the South experienced declines in Building Permits.
While both Housing Starts and Building Permits declined on a m/m basis, the longer-term trend for both still remains intact. At 1.759 million, the 12-month average of Building Permits came in at the highest level since January 2007 while the 1.659 million average level of Building Permits was the highest since February 2007. Higher interest rates have caused a slowdown in housing at the margin, but longer-term trends have yet to show signs of rolling over. Click here to learn more about Bespoke’s premium stock market research service.
As the national average for a 30-year fixed rate mortgage has risen to and remained above 5%, homebuilder sentiment has been reversing its pandemic gains. The NAHB’s monthly homebuilder sentiment index dropped 2 points in April to 77. That was the fourth decline in a row bringing the headline number to the weakest reading since September of last year. That is also now only one point above the December 2019 pre-pandemic high.
The decline this month was mostly driven by a decrease in traffic. That index dropped 6 points to 66 which is the weakest level and the biggest one-month decline since last August. Meanwhile, present sales dropped 2 points for the second month in a row. On the bright side, future sales actually ticked up 3 points to snap a three-month losing streak. That being said, the current level of this index is much less elevated within its historical range compared to the others.
Geographically, there are some large divergences in homebuilder sentiment. For starters, the Northeast showed the most impressive improvement with the index rising 9 points month over month. Whereas last month it was the lowest within its respective historical range, today it is the most elevated. The South also saw an improvement as this region has perhaps been the most stable across the pandemic years. The West and Midwest were other stories entirely in April. The Midwest experienced its second-largest decline on record behind the 42 point drop in April 2020 and is now at the lowest level since June 2020. Meanwhile, the West fell 7 points. That also was the biggest drop in two years though the index saw an even lower reading as recently as last September.
As homebuilder sentiment drops, so too have homebuilder stocks. The iShares US Home Construction ETF (ITB) — which tracks the space — has been falling sharply since peaking around the turn of the year. Click here to view Bespoke’s premium membership options.