“Single-family starts are showing gradual improvement from the beginning of the year, and this is reflected in our builder sentiment surveys, which are up for five consecutive months,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “Due to a lack of inventory for resales, we expect to see further improvement for single-family production in the months ahead even as builders continue to grapple with supply-chain and labor shortages.”
Kelly Mangold, principal at RCLCO Real Estate Consulting, noted that affordability headwinds have pushed builders to adjust their offerings to appeal to a more moderate price point.
“Smaller floorplans and slimmed-down finish packages allow for more palatable pricing in today’s high-interest environment,” Mangold said. “There is a lack of inventory in the resale market because would-be sellers are staying put to retain their attractive mortgage rates. Therefore, the increase in starts is poised to provide welcome relief for a constrained for-sale housing market, and the limited supply of resale inventory has made new homes an appealing option for motivated buyers.”
“There remains a downside risk, though, as we continue to expect the economic backdrop to weaken and many smaller homebuilders are likely facing tighter construction loan credit amid the fallout from recent banking turmoil,” Fannie Mae chief economist Doug Duncan added. “Additionally, the market has consistently underestimated the Fed’s resolve on lowering inflation to its target level, so a further resurgence of interest rates cannot be ruled out; if this occurs, we believe the current strain on affordability could worsen and work to suppress future demand.”
Overall, building permits dropped 1.5% to a 1.42 million annual rate in April. Single-family permits were up 3.1% to an 855,000-unit rate, while multifamily permits fell 7.7% to an annualized 561,000 pace.