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Home builders are the busiest they’ve been in years, but rising mortgage rates are starting to pinch.
The numbers: Construction on new houses dropped 3.7% in April, but it’s no big deal. Housing starts hit an 11-year high just a month earlier and some comedown was expected.
The annual rate of new homes being built declined to 1.29 million last month from a revised 1.34 million pace in March that was the strongest since mid-2007. That’s how many homes builders would erect if they maintained April’s pace through the whole year.
Economists polled by MarketWatch has expected starts to total 1.29 million.
Permits for new construction slipped a smaller 1.8% to a 1.35 million annual clip, the government said Wednesday.
What happened: Most of the decline in home construction occurred in the volatile multi-dwelling category — condos, townhouses, apartment buildings and the like.
Single-family starts were barely changed. These homes make up the bulk of the U.S. market for new dwellings.
Starts fell in all regions except the South, where roughly half of all new homes are built each year.
Big picture: The housing market has been growing for years due to low interest rates and the best jobs market in two decades, but rising mortgage rates could be starting to pinch.
The cost of a home loan just hit a seven-year peak, for instance, and that’s contributed to a recent decline in mortgage applications.
Rates are still low by historical standards, though, and a growing economy means there’s still plenty of buyers in a market whose biggest problem is a lack of supply. New home construction is up almost 11% vs. a year earlier but it still hasn’t been enough to keep up demand.
Market reaction: The Dow Jones Industrial Average DJIA, -0.78% and Standard & Poor’s SPX, -0.68% were set to open modestly lower in Wednesday trades. The 10-year Treasury yield TMUBMUSD10Y, -0.48% was flat at 3.01%.
Shares of home builders such as D.R.Horton DHI, -6.73% and Taylor Morrison Home Corp. TMHC, -5.29% were little changed in premarket trading, but they have fallen off their 52-year highs in part because of rising mortgage rates.