Market Perspective

Housing Starts Lower Than Expected but Higher Than Last Year


Overview: It was a relatively quiet week for mortgage markets. The major economic data was a bit weaker than expected overall, and mortgage rates ended slightly lower.

Given the critical need for a greater supply of homes in many regions, the report on housing starts released this week was somewhat disappointing. In April, housing starts fell 10% from March, which was below expectations. A significant dip in starts was seen in February as well, but it was very clearly tied to severe weather in many areas. By contrast, the primary reasons provided by builders for this month’s slowdown were potentially longer-term in nature, including higher costs and shortages for skilled labor, land, and materials. Bigger picture, though, starts still were 67% higher than they were a year ago in April. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key indicator of growth. Consumer spending has been very strong this year due to a wide variety of factors, such as the reopening of the economy and the distribution of stimulus checks. In the latest report, the impressive results seen in March were revised even higher from an increase of 9.8% to 10.7%. In April, however, retail sales were flat from March, which was below the consensus forecast for a gain of 1.0%. As a result, the report was roughly on target with expectations overall and caused little reaction.


The minutes from the April 28 Fed meeting were in line with recent comments from officials. Investors were most interested in the outlook for the bond buying program, but the guidance in this area was rather vague. According to the minutes, some officials felt that if the economy continues to rapidly improve, “it might be appropriate at some point in upcoming meetings to begin discussing” altering the pace of asset purchases.


Week Ahead


Looking ahead, investors will continue watching global Covid case counts and vaccine distribution. Beyond that, it will be a light week for economic data with a focus on the housing sector. Existing Home Sales will be released on Friday and New Home Sales on Tuesday.

Housing Starts (thousands)


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