By Shaina Mishkin

April was an ugly month for home construction. Investors don't seem to mind.

Housing starts, a tally of how many homes builders began, rose 1.6% from March to a seasonally adjusted annual rate of 1.36 million in April -- a smaller gain than the 5.2% rise economists expected, according to FactSet. The increase was led by multifamily construction; single-family starts sagged 2.1% from the month prior to the lowest level since July.

The news follows a gloomy reading on confidence in the industry published by the National Association of Home Builders on Thursday. A measure of sentiment among home builders dropped to its lowest level since late 2022.

"The spring home buying season has gotten off to a slow start as persistent elevated interest rates, policy uncertainty and building material cost factors hurt builder sentiment in May," Buddy Hughes, the National Association of Home Builders' chairman, said in a statement.

Stocks shrugged off both announcements. The iShares U.S. Home Construction ETF closed 0.9% higher after Thursday's builder confidence reading, and large builders such as D.R. Horton, Lennar, and PulteGroup were rising in premarket trading on Friday.

Part of the explanation is that the picture on tariffs and trade has changed since the data were collected. "The shock of the magnitude of the tariffs announced has both worn off and has obviously been softened somewhat by the actual negotiated settlements," says Carl Reichardt, a BTIG analyst who covers home builders.

The bad news about sentiment reflects how builders saw the outlook before the U.S.-China trade deal announced on Monday. "The overwhelming majority of survey responses came before the tariff reduction announcement with China," the Home Builders association's Hughes said in the statement. "Builders expect future trade negotiations and progress on tax policy will help stabilize the economic outlook and strengthen housing demand."

With some progress on the trade fears that pressured builders -- and broader markets -- this spring, investors in home builders are back to watching mortgage rates, said Reichardt, noting that the stocks have been particularly range-bound lately. "The catalyst to move the group is rates," he said.

Mortgage rates this spring have remained in the mid-to-high-6% range. Freddie Mac's measure of the 30-year fixed mortgage rate, which is compiled as a weekly average, was 6.81% this week, up slightly from the week prior.

"The history of lower rates improving the prospects for the stocks is pretty well documented," the analyst said, adding that those lower rates need to eventually translate into more sales for the stocks to perform well. "This is the number one thing the stocks themselves need."

That means that investors should continue to watch the 10-year Treasury yield, which often indicates which way mortgage rates are headed. The 10-year yield was 4.398% as of Friday morning, according to Dow Jones Market Data, down 0.056 percentage point for the day but up about 0.225 percentage point this month.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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May 16, 2025 09:38 ET (13:38 GMT)

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