Homebuilding in the US fell to the lowest rate in 5 years, according to the housing report released on Thursday by the Commerce Department. April housing starts plummeted 30.2% to a seasonally adjusted annual rate of 891,000 last month, the lowest level since 2015. Annually, housing starts fell 29.7%, with declines seen in all four regions.
- Housing starts fell 30.2% in April to 891,000 units, a 5-year low, and starts fell 29.7% annually.
- The market had forecast a decline of 26% rather than 30.2%, making April worse than expected.
- The downturn in the housing market adds more weight to the devastating impact of the coronavirus impact on the US economy.
Starts fell to just 891,000 units last month vs. 927,000 expected and down from 1.2 million in March and 1.5 million in February. Starts had already dropped 22.3% in March with the sudden escalation of the pandemic within the US. Single-family homebuilding fell 25.4% to 650,000 units, while single-family permits fell 24.3% to 669,000 units. Starts fell 40.5% in the more volatile multi-family home segment, which includes apartment buildings and condos. Permits for this segment fell 14.2% t0 405,100 units.
It took 13 years, from 2006 to 2019 for US housing starts to climb back above 1.5 million at an annual rate
It took 2 months and a pandemic to drive it under 1 million pic.twitter.com/FZEwYTtGji
— (@lenkiefer) May 19, 2020
Homebuilding fell in all four regions of the country. While homebuilding is viewed as essential in certain states, the disruption to supply chains for building materials has well as economic hardship and uncertainty from record job losses have likely played a role in the sudden decline of housing starts.
Tens of millions of Americans are out of work as a result of the coronavirus, but the majority are likely to regain their jobs once their state lifts lockdown procedures. A Monday survey showed an increase in homebuilder confidence for May compared to April. Mortgage rates are also near record lows, potentially aiding homebuilding in the future.
While the housing market was already in a slump before the pandemic, it was showing signs of recovery thanks to lower borrowing rates and a booming labor market. Now, the housing market is likely to enter a severe contraction, along with most other aspects of the US economy. US GDP may fall by as much as 40% in Q2 2020, the largest reduction since the 1930s. The economy fell 4.8% in Q1, pulled down by the coronavirus which struck only in the last few weeks of the quarter.
Senior CIBC economist Katherine Judge stated that the housing market will take time to recover.
“Activity will likely recover only gradually as the unemployment rate remains elevated, with lower interest rates mainly translating through to refinancing activity in the near term,” she said. “On the supply side, builders continue to face challenges from supply chain disruptions, but the uptick in homebuilder confidence in May still suggests that housing starts likely reached a bottom in April.”
Gold prices have risen today, trading in the mid-$1,700 range. Spot gold last traded at $1,737.46 up 0.20 with a high of $1,741.07 and a low of $1,727.45/oz. Gold prices have held strong gains following a very volatile session on Monday, with the use case for gold as a safe haven asset still going strong in these uncertain economic times.
Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Steven Mnuchin are due to speak before the Senate Banking Committee today regarding emergency lending programs implemented by Congress.