Privately-owned housing starts in the U.S. rose 2.6% to an annualized pace of 717,000 units in April, from a revised 699,000 units in March (previously reported as 654,000.) Market expectations going into the report had been for an increase to 685,000 (up 4.7%) while RBC looked for a 2.4% gain. April's increase was the result of a 3.2% increase in the volatile multiples component, to an annualized pace of 225,000 from 218,000 the prior month. Single starts posted a 2.3% rise to 492K.
Building permits dropped by 7.0% in April following the sharp 8.8% rise. On net, permits stood at 715,000 in April, just slightly below Q1's average of 720,000. Market expectations going into the report were for a 2.2% drop in permits. April's decrease was due to a 20.8% drop in the multiples component, with permits for single family homes rising 1.9%. Multiple-unit permits surged by 32.3% in March with April's decline leaving the level just shy of the first quarter's 255,000 average.
Housing starts stabilized in April after rising in the first quarter to average 712,000 annualized units, a 5.0% increase over Q4 and an 22.1% increase on a year-over-year basis. Warmer-than-usual winter weather was partly responsible for the pickup in construction activity in the first quarter with April providing a cleaner read on activity levels.
To the extent that starts remained at Q1's elevated levels, this report suggests that the housing market has found its feet. This was corroborated by yesterday's Homebuilders' housing market sentiment index which hit a post-recession high. The improvement in the labour market in 2012 combined with record low interest rates and low housing prices has made housing affordability very attractive.
Having said that, the average price of a new home in the first quarter was 14.6% below its peak and at 8.1%, the unemployment rate remains historically elevated. These factors will limit the upside to residential construction activity with only a gradual rise in starts in 2012/2013 expected.
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