US Housing Starts and Future Building Intentions Fall, Expected To Drop Further

US real estate is slowing down and it’s taking new home building activity with it. US Census Bureau data shows housing starts fell in April, as did building permits. Activity remains elevated compared to before 2020, but high rates and inflation are cooling the market fast. It’s expected to cool even further in the coming months.

US Housing Starts Starts Slowed Down, But Remain Elevated

US housing starts slipped on a seasonal basis but remain at elevated levels. The seasonally adjusted annual rate (SAAR) of starts fell to 1.72 million homes in April. This is a drop of 0.2% from March’s revised numbers, but 14.6% higher than last year. Activity is still elevated compared to historic data. It’s cooling very quickly, though. 

US New Housing Starts

The seasonally adjusted annual rate of new housing starts across the United States.

Source: US Census Bureau; HUD; Better Dwelling.

Tempering demand was attributed to the cost of construction, at BMO Capital Markets. “Housing starts fell for the second straight month in April amid a slew of headwinds, including re-intensifying supply chain disruptions, high material costs, and the need for skilled labor,” said Priscilla Thiagamoorthy, an economist with the bank.

“Homebuilding is likely to moderate in response to the supply challenges and the sharp acceleration in mortgage rates that are weighing on overall sentiment.” 

Falling Building Permits Shows Future Intentions Are Slowing Too

Building permits were also reported showing demand for future building activity. The SAAR of permits fell to 1.82 million homes for April, down 3.2% from March’s revised rate. Permits for new homes remain 3.1% higher than last year, indicating activity is also elevated in this area.

Future building activity in general is expected to cool but not collapse. “We think a shortage of supply and a record backlog of starts will keep a floor under activity, however, but supply-side constraints will probably continue to prolong construction timelines,” said Nancy Vanden Houten, an economist with Capital Economics.

Rising costs are pretty much everywhere. From mortgage financing to building materials, it’s a lot more expensive for a home. Combine that with a 40-year high for inflation in the US, and it’s not hard to see the demand drop continue.