U.S. Housing Starts Fall Sharply from Five-year High in April; Initial Claims Rise by more than Expected in the Latest Week


 
Author: RBC Financial Group Economics Department
Location: Toronto
Date: 2013-05-17

  • Housing starts fell 16.5% to 853,000 annualized units in April, significantly weaker than the 970,000 starts expected by markets going into the report.
  • In sharp contrast, building permits jumped 14.3% in April to an annualized 1.017 million, much stronger than market expectations for a reading of 941,000.
  • In a separate release, initial claims for unemployment insurance in the US rose by 32,000 to 360,000 in the week ending May 11, missing market expectations for a 330,000 reading. The increase in filings in the latest week built on the rise to a revised 328,000 (was 323,000) in the previous week and brings claims to their highest level since the end of March.
  • While the larger-than-expected decline in new home construction in April is disappointing and provides a soft starting point for homebuilding activity in the second quarter (starts are an annualized 38.4% below the Q1/13 average), the significant pickup in building permits, combined with other indications of improving housing market conditions, such as yesterday’s reported improvement in homebuilders’ confidence in May, suggest that the pullback in activity is likely just a brief pause in the firmly established upward trend rather than a trend reversal.

 

Privately owned housing starts in the US fell 16.5% in April to a five-month low of 853,000 annualized units, missing market expectations for a reading of 970,000. The sharp monthly decline in homebuilding comes after activity hit a five-year high of 1.021 million annualized units (initially reported as 1.036 million) in the previous month.

The moderation in the pace of new home construction in April reflected weakness in both components. Multiple-unit starts plunged 38.9% to an eight-month low of 243,000 while single-unit construction recorded a more modest 2.1% decline to a five-month low of 610,000 annualized units.The significant pullback in the multiples component comes after hitting the highest level of starts since December 2006 in the previous month. On a regional basis, weakness was seen in the South (-27.9%), Northeast (-12.8%) and West (-6.2%) while a solid increase in the Midwest (+10.9%) provided some offset.

On a more encouraging note, the number of building permits issued surged in April, jumping 14.3% to 1.017 million annualized units, the highest level since June 2008. The strength in April reflected a 37.5% bounce in permits for multiple-unit residences (to 400,000 annualized units) while permits for single-unit homes rose by a more modest 3.0% (to 617,000).

While the larger-than-expected decline in new home construction in April is disappointing and provides a soft starting point for homebuilding activity in the second quarter (starts are an annualized 38.4% below the Q1/13 average), the significant pickup in building permits in the month, combined with other indications of improving housing market conditions, such as yesterday’s reported improvement in homebuilders’ confidence in May, suggest that the pullback in activity is likely just a brief pause in the firmly established upward trend rather than a trend reversal. We continue to anticipate that new home construction will increase throughout the remainder of this year and into 2014 as the residential real estate market continues to normalize and we expect starts to hit 1.3 million annualized units by the end of next year.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

 

To subscribe or visit go to:  http://www.riskcenter.com

http://riskcenter.com/articles/story/view_story?story=99915378