Data released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Thursday showed a 5.7% month-over-month increase in new home starts in April, with the seasonally adjusted annual rate reaching 1.36 million units. However, this figure is still down by 0.6% compared to the same period last year.

Thomas Ryan, a real estate economist at Capital Economics, noted, "The modest rebound in the April housing starts suggests that the previous month's slump may have been a temporary weather-related phenomenon." "However, this recovery is not as strong as we had anticipated."

Amidst a shortage of existing homes in the market, the increase in new constructions in recent months has played a crucial role in meeting buyer demand. However, there are signs that the rise in mortgage rates has put pressure on real estate developers. A key indicator of builder confidence plummeted last month. According to Freddie Mac data, mortgage rates rose to over 7% in April, reaching 7.17% by month-end.

The rebound in construction in April was primarily driven by a significant increase in multifamily housing starts, which surged by 30% month-over-month to an annualized rate of 329,000 units. Although there was growth in monthly data, multifamily housing starts were down by 25.9% compared to the same period last year, still well below historical averages.

Single-family housing starts remained relatively flat from March to April, declining by less than 1%. However, compared to the same period last year, new home construction increased by 17.9%.

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Regionally, housing starts declined in the Northeast and West, while increasing in the South and Midwest.

Housing starts in the Midwest increased by 19.1%, mainly driven by multifamily housing. Similarly, multifamily housing starts in the South increased by 10.1%. Housing starts for single-family homes in both regions declined by less than 1%.

In the higher-priced Northeast, housing starts declined by 22.6%, with single-family housing starts dropping by 13.6%. The West saw a slight decrease in housing starts by 2.5%, but single-family housing starts increased by 3.1%.

The rise in mortgage rates has put pressure on the real estate market in various ways, such as deterring potential buyers who were previously attracted by lower rates and making it difficult for potential buyers facing higher monthly payments. Builders' response has been to implement various measures to attract buyers.

Lisa Sturtevant, Chief Economist at Bright MLS, said, "Single-family home builders are not only lowering prices but also creating smaller homes to meet the demand of entry-level and mid-market segments."

However, there are signs that market conditions are beginning to pressure builders. A key builder confidence survey released on Wednesday showed a decline for the first time since November 2023.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for May showed a builder confidence index of 45 for new single-family home sales, down 6 points from April.

NAHB Chairman Carl Harris said, "The market has slowed since the rise in mortgage rates, causing many potential buyers to pull back."

The May HMI survey also showed that 25% of builders lowered prices to stimulate sales. Home prices have remained stable, with a consecutive 11-month decline rate of 6%.

Builders also reported an increase in the proportion of using sales incentive measures from 57% in April to 59% in May.