US: Housing starts pull back from cycle highs – Wells Fargo

Housing starts tumbled 22.3% in March in the United States to a 1.2 million (annual rate). Analysts at Wells Fargo point out starts averaged a 1.595 million from December to February. They noted permits fell only modestly despite the pandemic.

Key Quotes: 

“The 22.3% drop in housing starts reported for March was largely in line with expectations. Starts had hit their highest pace of the cycle during the prior three months, averaging a 1.595-million unit pace. Both single-family and multifamily starts fell sharply in March, tumbling 17.5% and 31.7%, respectively. Homebuilding is not at the center of the current economic storm, but demand for single-family homes and apartments will certainly be impacted by the sharp pullback in overall economic activity and the spike in the unemployment rate.”

“This morning’s report shows 684,000 multifamily units are currently under construction, which is 150,000 more units than single-family homes (which includes townhomes) and nearly double the 364,000 multifamily units completed in March. Unfortunately, the bulk of this supply is likely to come on line when the economy is recovering from The Great Shutdown, and absorption is likely to come back somewhat slower than it did after the last recession.”

“The strong start will not prevent single-family starts from falling this year, however. The April NAHB/Wells Fargo Homebuilders survey noted a sharp drop in prospective buyer traffic, and several homebuilders have noted an uptick in contract cancelations.”

“We are looking for a modest pullback in single-family construction this year and expect a much more abrupt slowing in multifamily starts later this year and in 2021.”