Construction of new homes in the US saw the largest monthly decline since 1984, pushed downward by the impact of the coronavirus outbreak on the housing market and the economy as a whole. Residential starts dropped 22.3% to a rate of 1.22 million vs. 1.3 million expected, an 8-month low. Permits dropped 6.8% to 1.35 million.
- Housing starts fell 22.3% in March to an 8-month low, the worst monthly drop since the mid-80s.
- Groundbreakings fell from an annual rate of 1.56 million units to 1.2 million, according to the Commerce Department.
- Construction of single-family homes fell 17.5%, with condo starts tumbling 32.1%.
22 million Americans have lost their jobs in the last four weeks, and with nationwide containment procedures in place, construction is difficult or impossible in many regions throughout the US. With reduced demand and a major recession now underway, the housing market is tumbling along with other portions of the US economy, such as retail and labor.
The number of homes being completed saw a 6.1% drop, meaning many homes are left half-finished due to the unfortunate timing of their construction. Permits, an indicator of future construction, fell 6.8%. This decline was entirely due to a 12% drop in single-family unit permits, while permits actually rose for the multi-family home category. However, multi-family buildings saw the biggest drop in new construction, falling 32% last month compared to 17.5% for single-family units.
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The Northeast saw the worst regional drop, with new construction falling 42.5%, almost twice the drop seen in other regions. The Midwest saw the largest decline in single-family housing starts, and that category saw an increase in the West last month.
The coronavirus only began to disrupt the housing market in late March, making it likely that April figures will be worse. While building permits hit a 13-year high in January, indicating an upcoming housing market boom, the pandemic has triggered a major downturn throughout the US economy, including in housing. The housing market will be severely affected, with an annual decline of 9.3% in housing starts forecast overall.
Chief economist at Naroff Economics Joel Naroff stated "The decline in economic activity is breathtaking. While we will see an initial upturn once the economy reopens, the strength and length of that recovery is not clear at all."
Senior BMO Capital Markets economist Sal Guatiere wrote “Starts could well sink to half this level (0.6 million) in April, as the National Association of Home Builder housing market index plunged by a record 42 points, four times more than the next worst month.”
“Housing is not safe in the current situation, as job losses mount and prospects for homeownership dim,” said Rubeela Farooqi, chief U.S. economist for High Frequency Economics.
Gold prices have held gains from earlier in the session following the joint release of very downbeat economic data on manufacturing, housing, and jobless claims today. Spot gold last traded at $1,728.48/oz, up .70% with a high of $1,738.46/oz and a low of $1,713.20/oz. Gold prices saw a major correction in yesterday’s session, decoupled from downbeat economic news and likely part of a natural pullback following strong gains.