U.S. housing starts and permits data disappoint in April, residential investment to mildly support GDP growth

U.S. housing starts and permits began the second quarter with subpar readings, reversing certain progress made at the beginning of the year. Housing starts dropped 31,000 to 1172k units in April from March’s downwardly revised print of 1203 units. Market expectations were for a 1260k reading.

The decline was mainly driven by the multifamily segment, which recorded a drop in starts of 24k to 337k units. Meanwhile, homebuilding in the less-volatile single-family segment rose 3k to 835k on the month.

Building permits also came in below the consensus reading. It dropped to 1229k in April, as compared with the expected figure of 1270k. The single-family units mostly contributed to the disappointment, falling 37k to 789k from the prior month, while the multifamily segment recorded a 6k permit increase on the month to total 440k.

Activity in the South and the Northeast region weighted, with the regions recording a 47k and 59k decline in starts respectively. The Midwest recorded a rise of 60k in April as the West registered a rise or 15k rise in the month.

But despite the dismaying headline print, there was some good news in the report. The single-family segment stayed on an upward trend. This shows the continued labor market progress that supports the solid demand for new homes as increasing wages underpin household formation, noted TD Economics in a research report.

This segment shows economic conditions, and is gaining strength with the number of owner-occupied unites exceeding that of renter-occupied units in the March quarter. While the drop in permit activity implies some caution that might be related to elevated new home prices and the hike in interest rates starting to be a drag on housing demand, wage and income growth are expected to be solid in the months ahead and will possibly give some relief and underpin demand for new homes, added TD Economics.

“Today's report puts a bit of a damper on the relatively good economic data seen to start off the second quarter. Still, residential investment should be mildly supportive for overall economic growth this quarter, with GDP likely to clock in at about 3.4 percent during Q2”, stated TD Economics.