US: Homebuilding will prove surprisingly resilient during this recession – Wells Fargo

Data released on Tuesday showed that US Housing Starts dropped 30% in April, in line with expectations. Despite the numbers, according to analysts at Wells Fargo, homebuilding is proving fairly resilient and demand seems to be perking up.

Key Quotes: 

“April’s 30.2% decline in housing starts was widely expected and the underlying data confirm our thesis that homebuilding will prove surprisingly resilient during this recession. April’s decline largely reflects plunges in building activity in large states, some of which did not deem home construction an essential business. But activity also pulled back even in states where homebuilding was deemed essential, as builders grew cautious amidst a nearly complete lull in demand as well as growing concerns about apartment tenant demand and the ability to collect rents.”

“As more information became available, however, builders became more confident. Permits for new construction fell 20.8% to a 1.074 million-unit pace, suggesting that housing starts will rebound in coming months. The demand for housing is derived from the underlying growth in the economy and there is absolutely no doubt April was a difficult month.”

“April’s drop in starts also reflects some payback from the strong start to the year. Even with April’s drop, single-family starts through the first four months of this year are running 1.3% ahead of their year-ago level, and are up in every region except the Northeast, where they are down 25.5%. Builders still had plenty of work during the month of April and many projects will likely be stretched out as builders maintain social distancing practices and limiting the number of subcontractors in a home at any given time.”