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New Residential Construction Dips to Four-Year Low

Recent data reveals that new residential construction, encompassing both single-family and multifamily homes, experienced a significant decline, marking the largest drop in four years. This downturn has been attributed to rising mortgage rates, which have weakened overall housing activity.

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The figures from the Census Bureau show that housing starts plummeted by 14.7% on a monthly basis in March, plummeting from a pace of 1.55 million units annually to 1.32 million units annually. Single-family starts saw a decrease of 12.4% compared to the previous month.

Chief economist Jeffrey Roach of LPL Financial pointed out that this data indicates a potential slowdown in the growth rate of new home construction. He warns that housing construction is likely to decelerate further as prospective homebuyers express hesitation in the current market conditions.

Investors are advised to prepare for residential investment to act as a drag on GDP growth in the coming quarters. The stabilization of housing activity may not occur until the Federal Reserve initiates an easing cycle.

In addition to the recent government findings, builder sentiment remained unchanged in April, ending a streak of four consecutive months of improvement. The National Association of Home Builders (NAHB) noted that buyers are refraining from making decisions until they have a clearer picture of where interest rates are heading.

Property economist Thomas Ryan of Capital Economics predicts that single-family starts may see a boost due to limited availability of pre-owned homes in the market, leading to a shift in demand towards new construction. However, the strength in single-family starts is likely to be offset by a weakness in multifamily starts, with total housing starts expected to see minimal growth by the end of the year.

Market Response and Outlook

The SPDR S&P Homebuilders ETF (XHB) experienced a decline of more than 1% in early trading on Tuesday. As the industry adjusts to changing dynamics in the housing market, stakeholders will need to closely monitor developments and adapt their strategies accordingly.

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