Implications:  US homebuilding continues to whipsaw as builders deal with all sorts of headwinds, tailwinds, and crosswinds. After unusually cold weather and California fires held back homebuilding in January, new home construction rebounded sharply in February, topping even the most optimistic forecast from any economics group surveyed by Bloomberg.  Then in March, homebuilding contracted by the most in a year, falling 11.4% to a level even lower than the weather-constrained month of January.  Already hamstrung by high home prices and relatively high mortgage rates, builders must now contend with the uncertainty of new tariffs and how they’ll impact their building costs.  Looking at the details, single-family construction led the decline, falling 14.2%, the biggest decline for the category since the COVID lockdown. The overall drop was split amongst regions, with the South and West responsible for the entirety of the decline (homebuilding in the Midwest and Northeast rose in March).  Looking at the trend, home construction has stagnated in recent years, with starts down 1.3% compared to two years ago and hovering around levels reminiscent of 2019.  That said, it appears that part of the reason why homebuilding has lagged is due to builders focusing on completing projects.  Home completions declined 2.1% in March, but the 1.549 million annual pace was faster than all but two months from 2020-2023.  Moreover, completions have run above a 1.5 million pace (our estimation of annual homes needed to keep up with population growth and scrappage) in eleven out of the last twelve months.  With strong completion activity and tepid growth in starts, the total number of homes under construction continues to fall, down 15.2% in the past year.  That type of decline is usually associated with a housing bust, but we don’t see that happening.  With the brief exception of COVID, the US has consistently started too few homes almost every year since 2007.  As a result of the shortage of homes, we think housing is far from a bubble and expect housing prices to continue higher in 2025 in spite of some broader economic headwinds.  In other recent housing news, the NAHB Housing Index (a measure of homebuilder sentiment) ticked up to 40 in April from 39 in March.  On the employment front, initial jobless claims fell 9,000 last week to 215,000, while continuing claims rose 41,000 to 1.885 million.  These figures suggest moderate job growth in April.  Finally, the Philadelphia Fed Manufacturing Index, a measure of factory sentiment in that region, dropped -26.4 in April from 12.5 in March.

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