US home building unexpectedly rose in April, climbing 2% from March, as low inventory in the existing home market boosts interest in new homes.
However, housing starts, a measure of new home construction, were down 22.3% from a year ago, according to data released Wednesday by the Census Bureau.
After surging in February following five consecutive months of falling, housing starts fell in March. The April turnaround saw units rise to a seasonally adjusted annual rate of 1.40 million, up from the revised March estimate of 1.37 million.
Singlefamily housing starts in April rose 1.6% from the revised March figure, at a seasonally adjusted annual rate of 833,000.
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Building permits, which track the number of new housing units granted permits, fell in April after also dropping in March. Permits were down 1.5% from the revised March rate, and were down 21.1% from a year ago.
In April, building permits were at a seasonally adjusted annual rate of 1.416 million. Building permits were down in the Northeast and Midwest, but climbed in the South and West.
"Housing affordability remains a concern with mortgage rates remaining above 6%, and builders have begun to adjust their offerings to appeal to a more moderate price point," said Kelly Mangold of RCLCO Real Estate Consulting. "Smaller floor plans and slimmed-down finish packages allow for more palatable pricing in today's high-interest environment."
Housing starts had big drops in May and July last year, when spiking mortgage rates pushed many prospective home buyers to the sidelines. Starts bounced back slightly in August, but fell through January.
Since then, with more positive economic news, building has perked up. As mortgage rates trended lower, builders have begun to feel more optimistic that conditions may improve in 2023.
But, broadly, home buyers in the US have become even more dismal about buying. Only 21% say it is a good time to buy a house, according to Gallup's annual Economy and Personal Finance poll, which was conducted in April. It's the lowest since the poll began asking this question in 1978. Prior to 2022, 50% or more consistently thought it was a good time to buy.
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Low inventory boosts home builder confidence
A separate survey released on Tuesday from the National Association of Home Builders revealed that the lack of inventory in the existing home market - as current homeowners hunker down with their ultra-low interest rates - is boosting home builder sentiment.
The National Association of Home Builders/Wells Fargo Housing Market Index gauges market conditions and looks at current sales, buyer traffic and the outlook for sales of new construction homes over the next six months.
The index rose in May, marking the fifth-straight month that builder confidence has increased and the first time that sentiment levels have reached the midpoint mark of 50 since last July.
"New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level," said Alicia Huey, NAHB chairman.
While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction.
"These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates," Huey said.
With limited available housing inventory, new construction will continue to be a significant part of prospective buyers' search in the rest of the year, said Robert Dietz, NAHB's chief economist.
"In March, 33% of homes listed for sale were new homes in various stages of construction," said Dietz. The typical share between 2000 an 2019 was 13%, he said.
With interest rates more than doubling from 2021, incentives have played a key role in attracting buyers. But these inducements are gradually slowing, according to NAHB.
The share of builders reducing home prices dropped to 27% in May, down from 30% in April and 36% last November. The average price reduction for a new home remains at a 6% drop, which has been unchanged for the past four months. Incentives were offered to 54% of new home buyers in May, down from 59% in April and 62% last December.
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