The numbers: Housing starts occurred at an 891,000 seasonally adjusted annual rate in April, the Commerce Department said Tuesday, representing a 30% drop from March. It was the slowest pace of new home construction since February 2015.
Permitting activity for newly-built homes fell 20.8% between March and April to a seasonally adjusted annual rate of 1.07 million.
Housing starts fell short of the consensus forecast of economists polled by MarketWatch — they estimated new home construction to take place at a 900,000-unit annual rate. Building permits beat economists’ consensus forecast of 996,000.
What happened: New-home construction declined for both multifamily properties (down 40%) and single-family homes (down 25%). The Northeast experienced the most pronounced slowdown in building activity with a 43.6% drop overall in starts and a 66% decline in single-family starts. This was a reflection of the large concentration of COVID-19 cases in the New York City metropolitan area, which became a global hotspot for the coronavirus pandemic last month.
The West experienced the next largest drop in housing starts, followed by the South and then the Midwest.
Building permits followed that same pattern, with the Northeast seeing the biggest drop with a 46% decline. Overall, building permits fell 24% for one-unit homes, but only 12% for multifamily buildings with five or more units.
The big picture: The downturn in construction activity last month was presaged by the decline in builder confidence. Last month, the National Association of Home Builders reported that optimism among home builders experienced a record-setting decline, dropping to the lowest level since 2012 because of concerns about coronavirus.
Historic unemployment levels and a major decline in consumer confidence restricted sales activity last month, which gave builders pause. Although most states deemed construction to be essential work — meaning it could continue in spite of stay-at-home orders — builders slowed their work to a crawl in anticipation of a housing market downturn.
The housing market’s trajectory for the rest of the year remains unclear. As stay-at-home orders loosen and the rate of infection improves in many states across the country, home buyers appear to be re-entering the market. Additionally, most of the jobs lost because of the pandemic were in the service sector — and researchers say these workers were less likely to be in the market to buy a home.
The viral outbreak also could shift buyers’ interests, which could give home builders an opportunity. “The silver lining to the cloudy horizon is the fact that a growing number of companies have extended the work from home policies until 2021, which has driven demand for more home space, as buyers look at more affordable housing options, away from expensive urban cores,” said Danielle Hale, chief economist at Realtor.com.
What they’re saying: “Although construction sites remained open in most states, the uncertainty about the pandemic and a plunge in sales likely curbed builder appetites,” said Michael Gregory, deputy chief economist at BMO Capital Markets, in a research note.