Implications: Housing starts fell 10.6% in April, coming in well below consensus expectations. The number of homes under construction also fell to the lowest level on record (dating back to 1970). However, it appears the drop in starts in April was primarily due to an unusually violent tornado season. On net, all of the drop happened in the South. Outside that one region, starts were up 5.5%. In addition, two-thirds of the decline in starts was in multi-family units, which are volatile from month to month. In other words, with the drop in starts in April concentrated in one weather-ravaged region and primarily due to the more volatile component of home building, today's report does not signal a future downward trend. Instead, we anticipate a significant rebound sometime in the next couple of months. Multi-family building has been generally moving up since late 2009 and, with the ongoing shift toward renting over owning, that trend should re-assert itself. Meanwhile, the South is still suffering, now with floods. But the impact of these disasters should clear by June. Also, not every aspect of home building is suffering. Completions increased 4.1% in April and yet are still at a low enough level so that builders can continue to work off the large excess inventory of homes. In fact, the pace of home building is still so low that inventory reduction will continue at a robust pace even as home building begins its long-term recovery later this year.
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Posted on Tuesday, May 17, 2011 @ 10:37 AM
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