U.S. Housing Starts Rallied Back in April

U.S. housing starts rallied back in April, rising 8.2%, to recoup some ground after March's huge 13.8% drop. Starts came in at a 1.032 million unit annual pace from March's 954,000 units which was the slowest since March 1991. Starts were 30.6% below the level recorded in April 2007 and started the second quarter about a percent below the average level of the first quarter. Still, activity in April was stronger than expected as economists forecasted that starts would edge down 0.8% to 939,000 units. Building permits also bounced back in April, rising 5% to post the first increase in five months.

The rise in April housing starts was concentrated in the multiple unit segment which increased 36% in April relative to March. Single-family home starts fell by 1.7%. Regionally, three of the four major census regions saw stronger activity with gains ranging from 24.4% in the Midwest to 3.6% in the South. The Northeastern states saw starts drop by 12.7% in April. The rebound in permits was moderately encouraging news but the level of permits remained depressed and was 56.8% below the recent peak level recorded in September 2005.

In Q1, residential construction activity trimmed 1.25 percentage points from the quarterly GDP growth rate and the low level of April starts and permits point to this sector continuing to act as a drag in the second quarter. With the inventory of homes available for sale holding at elevated levels, further price reductions will likely be needed to clear the inventory and set the course for stronger construction activity. While today's report hints that this process may be getting underway, it is a fair distance from supporting a sustained pickup in building. The drag from construction may lighten up as 2008 proceeds but the sector will likely remain under pressure for the duration of this year.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.