U.S. Housing Starts Fell in April for Third Time in Four Month -- Update

By Sarah Chaney and Eric Morath Features Dow Jones Newswires

U.S. new-home construction in April declined modestly for the third time in four months, a trend that is likely to worsen supply shortages and push prices higher at a time of swelling demand.

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Housing starts declined 2.6% in April from the previous month to a seasonally adjusted rate of 1.172 million, the Commerce Department said Tuesday. Single-family starts increased by 0.4% from March, while multifamily starts fell 9.6%, the fourth consecutive month of declines for that sector.

"With housing starts declining in April, inventory shortages will continue for a longer period of time. The intensifying housing shortage will push up home prices and rents, easily above wage growth and the broad consumer price inflation," said Lawrence Yun, chief economist at the National Association of Realtors.

April's 2.6% decline has a margin of error of 8.8 percentage points, and the overall trend continues to be one of generally increasing activity. Starts were 0.7% higher than the same month last year.

Permits, which tend to be a reliable indicator of future construction activity, also fell in April, by 2.5% to an annual pace of 1.229 million. Single-family permits declined 4.5%, while multifamily permits increased by 1.5%.

The slowdown in starts is likely to exacerbate an imbalance of supply and demand in the market. Home sales hit their strongest pace in a decade in the first quarter, the National Association of Realtors said Monday.

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Young people are finally striking out and forming new households. Some 854,000 new-owner households were formed over the past year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data.

Jeff Mezger, chief executive of KB Home, said the company is seeing a wave of demand, especially from first-time buyers who are moving out of their parents' homes, getting married and having kids. But building remains a challenge because of labor shortages and increased regulations, which have driven construction costs up more quickly than pricing.

"You're going to see a continued slow increase in activity levels. It's not going to be this explosion," he said.

Home builder confidence climbed to its second highest level since the downturn in May. The National Association of Home Builders/Wells Fargo Housing Market Index climbed two points to a level of 70, with 50 indicating that builders see market conditions as more favorable than not.

The slow ramp-up in construction activity is being driven largely by labor shortages. The number of residential construction jobs increased by 4% year-over-year in April, down from a 5.7% increase in March, according to an analysis of Labor Department data by Mark Fleming, chief economist at First American Financial Corp.

Mr. Fleming said this poses particular challenges for builders. If they increase wages to attract more workers they might not be able to produce starter homes to respond to increasing demand from first-time buyers. "It's a rock and a hard place for the home builders," he said.

"We have a huge demographic up swelling of millennial housing demand," he said. "The supply shortages are only going to get worse."

Write to Sarah Chaney at sarah.chaney@wsj.com and Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

May 16, 2017 10:53 ET (14:53 GMT)