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Lack of Demand Keeps US Home Building Depressed

The US April home building data, released Tuesday, reflected the lack of buyer traffic and reduced demand that has been in place since mid-March, even as mortgage rates remain near record lows.

Construction was labeled as an essential business in most states during the social distancing shutdowns, but without demand builders were reluctant to get too far out ahead of their skis.

The pace of housing starts plunged by 30.2% to an 891,000 annual rate, below the 968,000 pace expected. Single-family starts fell by 25.4%, while multi-family starts fell by 40.5%.

Building permits, which precede starts activity, fell by 20.8% to a 1.074 million pace, with declines in both single-family and multi-family permits. The decline suggests a further slowdown in the pace of housing starts in May.

Homes under construction fell by 1.7% to a 1.195 million rate in April, while completions fell by 8.1% to a 1.176 million rate, suggesting reduced supply of new homes available for sales going forward.

However, other data suggest home building could benefit from some state re-openings in May.

The National Association of Home Builders sentiment index, released on Monday, rebounded to 37 in May after plunging to 30 in April. The index was at 72 just two months ago.

That report showed partial rebounds in current single-family sales and the six-month outlook for sales for May, as well as the traffic of prospective buyers. While the May levels were still down significantly from earlier in the year, it could suggest a small rebound in the home construction data next month.

Another positive sign is the weekly Mortgage Bankers Association mortgage applications data, which has shown a pickup in demand for new mortgages in recent weeks after an initial plunge at the start of the shutdowns.

On the sales side, the April existing home sales data from the National Association of Realtors will be released on Thursday, while official government data on new home sales will be released on May 26.

Kevin Kastner

Julie Ros

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