By Sarah Chaney and Laura Kusisto
U.S. housing starts fell in April, signaling factors such as rising material and construction labor costs are holding down home building despite solid buyer demand.
Housing starts fell 3.7% in April from the prior month, to a seasonally adjusted annual rate of 1.287 million, the Commerce Department said Wednesday. Residential building permits, which can signal how much construction is in the pipeline, dropped 1.8%, to an annual pace of 1.352 million last month.
The 11.3% decline in starts for multifamily units dragged down the overall starts figure and represents a reversal of the outsize gains for multifamily starts in March. Single-family home construction also illustrated weakness in April, declining in every region except for the South, where starts popped.
Housing-starts data are volatile from month to month and can be subject to large revisions. April's 3.7% decline for starts came with a margin of error of 11.4 percentage points.
Factors such as rising material costs and labor shortages are converging to pose challenges to builders seeking to meet demand for homes.
"This disappointing housing starts report seems to indicate that home builders are finally saying 'Uncle,' " said John Pataky, chief consumer and commercial banking executive at EverBank. "After months of fighting to keep up with still-surging demand, the realities of higher input prices, a limited supply of lots and decreasing confidence seem to be taking their toll."
Some of the weakness in the Midwest and Northeast could be because of atypical snow and weather, said Scott Volling, principal at PricewaterhouseCoopers.
"But, if you take a step back and look at a more macro level, the quote I hear most often from builders is, 'we can't outbuild our labor,' " Mr. Volling said. "They may have lots ready to go, and there may be demand out there, but they can't go any faster than their labor pool allows them to."
Despite solid job and income gains that support housing demand, headwinds in the single-family market persist.
Rising material costs, caused in part by a tariff on Canadian softwood lumber, could also threaten to slow single-family home construction going forward. Lumber costs have risen 50% since the beginning of 2017, adding about $7,000 to the cost of building a home, according to Robert Dietz, chief economist at the National Association of Home Builders.
Mr. Dietz said so far single-family building has proven "remarkably resilient" to rising interest rates and higher construction costs. But eventually, he said, there will come a point where the market will take a pause.
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(END) Dow Jones Newswires
May 16, 2018 11:18 ET (15:18 GMT)
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