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4 hours ago
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Today’s housing starts report clearly shows that to build more homes, we will need lower mortgage rates. Without lower rates, housing permits — which are already at COVID-19 recession levels — are at risk of dropping even lower.
A few months ago, San Francisco Fed President Mary Daly said that builders have come off the sidelines to build more homes after the Fed cut rates last year. However, no housing data supports that statement because mortgage rates haven’t been able to stay near 6% long enough to grow housing permits or starts.
We noted on Thursday that homebuilder confidence is now just four points away from the lows seen during the COVID-19 pandemic. In 2025, builders will face pressure related to supply and margins, which means that without lower mortgage rates, we’re unlikely to see a construction boom anytime soon.
Housing starts report
From Census: Building Permits: Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,412,000. This is 4.7 percent below the revised March rate of 1,481,000 and is 3.2 percent below the April 2024 rate of 1,459,000. Single-family authorizations in April were at a rate of 922,000; this is 5.1 percent below the revised March figure of 972,000. Authorizations of units in buildings with five units or more were at a rate of 431,000 in April.
Housing Starts: Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,361,000. This is 1.6 percent (±11.8 percent)* above the revised March estimate of 1,339,000, but is 1.7 percent (±9.2 percent)* below the April 2024 rate of 1,385,000. Single-family housing starts in April were at a rate of 927,000; this is 2.1 percent (±12.1 percent)* below the revised March figure of 947,000. The April rate for units in buildings with five units or more was 420,000.
The charts below show that the data for single-family home starts and permits is concerning. Both metrics are trending negatively and the backlog of homes that have not yet started construction is at record-high levels. Elevated interest rates and ongoing tariff uncertainties compound this.
So, with supply rising and elevated rates making homes in the South harder to sell, it’s not shocking that homebuilder confidence is almost back to the lowest levels during COVID-19.
The total housing starts and permits charts do not look promising if mortgage rates continue to rise. Today, during an interview on CNBC with a Wall Street analyst, I reiterated my central theme from recent years: mortgage rates approaching 6% can have an impact, but when we reach 7% or higher, builders typically become more pessimistic about future housing production.
Conclusion
The homebuilders aren’t the March of Dimes; they need to know that they will make money to build more homes and with elevated mortgage rates, housing permits are still at levels consistent with the COVID-19 recession. You can see why the homebuilder survey is not far from the lows we saw in COVID-19 either — this survey focuses on smaller builders rather than the more prominent publicly traded homebuilders with the financial resources to manage higher rates.
However, all homebuilders and the housing construction industry would benefit if mortgage rates approached 6%. Given current Federal Reserve policy, the ideal scenario would be to see rates drop below that level, but that won’t happen until the labor market shows significant signs of weakness or we experience at least a 1% rate reduction from the . Furthermore, normalizing mortgage spreads could also help improve the situation.
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