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First Cut: Housing starts decline sharply in March, permits off as well

The level of starts of new homes fell 22.3% in March to 1.216 million units (SAAR), a sharp decrease that might not be entirely laid at the door of COVID-19. Builders certainly cut back on the number of units begun due to worries about a collapse in the housing market as consumers faced widespread unemployment and loss of income. However, it should be noted that the unusual strength of the December-February period probably borrowed some activity from the spring months. Additionally, housing starts were off 17.5% for single-family units to 856,000 in March, but the volatile multi-unit sector had a steep 31.7% decline to 360,000.

The impact of measures to prevent the spread of the coronavirus was more evident in the second half of the month and probably accounts for the fact that the numbers were not worse than they were. April, on the other hand, is likely to see the plunge in residential construction signaled by the April NAHB/Wells Fargo Housing Market Index which collapsed to 30 after 72 in March.

All four regions registered large declines in starts. The Northeast was down 42.5%, the Midwest was down 21.5%, the South down 21.3%, and the West down 18.2%. Even low mortgage rates are not going to help improve the pace of starts as consumers remain out of the housing market into April and May.

Permits-issued in March were down 6.8% to 1.353 million units (SAAR) and reflected a decline in permits for single-family units of 12.0% to 884,000. Multi-units actually gained 4.9% to 469,000. Like starts, some of the drop may be attributed to activity borrowed from the spring during unusually high demand for new homes in the winter months. However, the decline for single-family units is indicative of wider softening in homebuying in spite of low mortgage rates. Multi-units may reflect projects already planned and funded which could come off the books if things get worse, which they are likely to do.

Permits were down in all regions. The Northeast fell 7.6%, the Midwest was down 12.7%, the South down 3.1%, and the West off 10.5%.

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