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New U.S. home construction rebounded in April as limited inventory helped to jolt homebuyer demand, but the housing market remains in a slump.
Housing starts climbed 2.2% last month to an annual rate of 1.40 million units, according to new Commerce Department data released on Tuesday. That is above Refinitiv economists' forecast for a decline.
In a sign the deep freeze that has paralyzed the housing market for months is not over yet, housing starts remain down 22.3% compared with the same period one year ago.
"Housing starts and permits both gained some traction in April from March along with a boost in sentiment, but these increases are slight," said Nicole Bachaud, Zillow senior economist. "Compared to the building boom in 2021 and 2022 however, new construction has slowed considerably."
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Houses under construction at the Norton Commons subdivision in Louisville, Kentucky, on July 1, 2022. (Photographer: Luke Sharrett/Bloomberg via Getty Images / Getty Images)
Applications to build – which measures future construction – also tumbled 1.5% to an annualized rate of 1.42 million units.
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose five points to 50, the highest reading since July.
It marked the first time in nearly a year that the index pulled out of negative territory. Any reading above 50 is considered positive; prior to 2022, the gauge had not entered negative territory since 2012, excluding a brief – but steep – drop in May 2020.
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Homes in Rocklin, California, on Dec. 6, 2022. ( Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
"The good news is that home builder sentiment increased in April to positive territory for the first time since last summer, likely thanks to the low inventory of existing homes on the market meeting with spring home shopping demand," Bachaud said. "With renewed energy running through the spring housing market, hopefully home building activity will continue on an upward trajectory to add vital inventory when it’s needed the most."
Still, the gauge still indicates the housing market is in a slump.
The index has fallen to about half of what it was just one year ago, when it stood at 81, although it has increased from a low of 31. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers – flush with cash and eager for more space during the pandemic – started flocking to the suburbs.
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The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy and slow the economy.
Policymakers already lifted the benchmark federal funds rate 10 straight times – well into restrictive territory – as they try to crush stubborn inflation that is still running about double the pre-pandemic average.