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First Cut: Housing starts and building permits plunge in April as builders pull back and consumers stay home

Starts of new homes fell 30.2% to 891,000 (SAAR) in April, the lowest since 888,000 in February 2015. Starts of single-family units were down 25.4% to 650,000, the lowest since 627,000 in March 2015. Multi-unit starts were down 40.5% to 234,000, the lowest since 214,000 in June 2013. Compared to a year-ago, total home starts were down 29.7%. While the numbers aren’t back to lows seen back during the housing bust and recession of December 2007-June 2009, April was only the first month of widespread closures of business activity that resulted in massive unemployment that in turn cut off access to homebuying for large numbers of previously eligible homebuyers. It is likely that the trajectory for the May data is down even further. Homebuilders have responded quickly by shutting down many building projects and severely scaling back plans for future residential construction.

The decline in starts was across regions. The biggest impacts were seen in the Northeast (down 40.3%) and West (down 43.4%) where quarantines and shuttering of nonessential businesses happened sooner than in some other regions. Nonetheless, starts declined sharply in the Midwest (down 14.9%) and South (down 26.0%).

The COVID-19 pandemic response also greatly reduced demand for building permits in April. The total fell 20.8% to 1.074 million (SAAR) with single-family permits down 24.3% to 669,000 and multi units down 14.2%. Total permits were down 19.2% compared to a year ago. The April level was the lowest since 1.071 million in March 2015. When read in the context of the change in starts, essentially any gain in upward momentum of the past five years has been wiped out.

The reduction in permits issued was largest in the Northeast (down 45.5%), but still substantial in the West (down 28.0%), Midwest (down 16.1%), and South (down 14.7%). Again, the trajectory is likely to be to the downside as stay-at-home orders continued into May and the unemployment rolls continued to rise as many businesses remained closed. Low mortgage rates will not be the incentive they would in more normal circumstances.

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