May 17, 2023

Housing starts rose 2.2% in April to 1,401 thousand after declining 4.5% in March  Given that the homebuilder’s report has risen for several months, it is likely that January will prove to be the lowpoint for housing starts.

Homebuilder confidence rose 5 points in May after  after rising  1 point in April, 2 points in March, 7 points in February and 4 points in January.  Apparently, the recent drop in mortgage rates from 7.0% to 6.5% is proving to be confidence building for builders.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates may rise slightly as the year progresses.  Home prices should continue to decline at a steady pace.  And consumer income will continue to climb as jobs are created and hourly earnings continue to climb.  As a result, housing affordability should increase as the year progresses.  That suggest that housing starts, building permits, and home sales should all continue to increase.

The slowdown in housing this year has been concentrated in the single-family category as builders feared that the rise in mortgage rates and continued strength in prices would drive many single-family home buyers to the sidelines.  They have chosen to build multi-family units instead which should be far more stable in an economic downturn.

Building permits fell 1.5% in April to 1,416 thousand after declining 3.0% in March but jumping 9.5% in  February.   We have seen the bottom for this series as well.

Given the likely increase in housing affordability and renewed builder enthusiasm we believe that housing starts will rise slowly but steadily as we move throughout the spring and summer months.

We currently expect 2.0% GDP growth in the second quarter and 1.3% GDP growth for the year.

Stephen Slifer


Charleston, S.C.