Homebuilders Capitalizing on Lack of Housing Inventory

After falling 0.8% in March, housing starts were back up again in April, according to a report released Wednesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Home starts checked in at an estimated annual pace of 1.401 million in April, up 2.2% month over month. Despite this increase, housing starts were down 22.3% on a yearly basis. 

The monthly uptick in starts came via increases in both single family (1.6%) and multi-family (5.2%) building, with paces of 846,000 homes and 542,000 homes, respectively. 

“Single-family housing starts have improved modestly alongside cautious builder optimism, as homebuilder sentiment inched into positive territory in May, increasing for the fifth consecutive month.” Odeta Kushi, the deputy chief economist at First American, said in a statement. 

Industry economists attribute the uptick in housing starts and builder confidence to the low level of existing home inventory. 

“Despite elevated mortgage rates and a slower-than-typical spring housing market, homebuilders are feeling confident about the outlook for new housing demand because the inventory of existing homes for sale remains very constrained,” Lisa Sturtevant, the chief economist of Bright MLS, said in a statement.

“In April, the inventory of existing homes for sale totaled just 980,000, far lower than the long-term average of about 2.3 million homes.”

While housing starts were up in April, the number of permits issued was down 1.5% month over month to a pace of 1.416 million, thanks to a 9.7% monthly decrease in the number of multi-family permits issued to 502,000. However, there was good news for single-family home builders as the pace at which permits were issued rose 3.1% from March to 855,000. 

Year over year, the number of permits issued was down 21.1%.

Compared to the building boom in 2021 and 2022, “new construction has slowed considerably,” said Nicole Bachaud, Zillow’s senior economist. “However, the permits pulled, and units started a year ago are making their way to the market now with completions up over last year, adding some new inventory to the market.”

Housing completions were also down in April, dropping 10.4% from the month prior to a pace of 1.375 million. However, on a yearly basis, completions were up 1.0%. While single-family completions were down 6.5% month over month to a pace of 971,000, multi-family completions were up 5.2% to 400,000.