"It remains unclear how much recent banking turmoil and tighter credit affected these data"
New housing starts decreased in March after a rebound in February, but single-family production showed signs of a gradual upturn as mortgage rates stabilized.
Overall residential construction dropped to a seasonally adjusted annual rate of 1.42 million units in March, the Census Bureau reported. The March reading was 0.8% below the revised February estimate of 1.43 million and 17.2% below the March 2022 rate of 1.72 million units.
“March had its fair share of economic uncertainty with news of failing banks, which may have spooked some buyers,” said Kelly Mangold, principal of RCLCO Real Estate Consulting. “As spring is a historically popular time for sales, builders may still look to increase their inventory in the coming months to hopefully capture buyers who may have been sidelined over the past year but are looking to finally enter the market.”
Fannie Mae chief economist Doug Duncan said the latest reading puts first-quarter construction moderately above their forecast as demand for housing proves to be more resilient than they had previously expected.
“The supply of existing homes remains constrained both because of a decade of underbuilding following the Great Financial Crisis and, more recently, the lock-in effect discouraging current homeowners from listing their homes for sale (and thus giving up their low mortgage rate),” Duncan explained. “As such, in light of an extremely limited supply of existing homes for sale, many homebuyers are turning to new homes. This phenomenon coincides with lower building materials costs compared to a year ago, which allows homebuilders to offer stronger concessions and rate buy-downs while maintaining profit margins.”
Within the overall figure, single-family housing starts rose 2.7% to an 861,000 annualized rate. However, this remains 27.7% lower than a year ago. Multifamily production, while still at historically high levels, gave back part of its early-year surge with a 5.9% decline to a SAAR of 559,000, Duncan noted.
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“It remains unclear how much, if at all, recent banking turmoil and tighter credit conditions affected these data,” he said. “On one hand, mortgage rates pulled back, which could spur some additional single-family demand. However, tighter credit conditions would result in homebuilders having a harder time financing new projects, which would weigh on future construction activity.”
Overall permits fell 8.8% to a 1.41 million pace in March. Single-family permits were up 4.1% to an 818,000 unit rate but down 29.7% compared to a year ago. Multifamily permits plunged 22.1% to an annualized 595,000 pace.
The number of single-family homes under construction fell for the 10th consecutive month in March to 716,000. Builders completed 15,000 more homes than began construction, resulting in a decline for the construction pipeline, according to the National Association of Home Builders.
“With builder sentiment climbing for four consecutive months and single-family starts continuing to move gradually higher from low levels since the beginning of the year, this indicates that a turning point for single-family construction will occur later this year after declines in 2022,” said NAHB chairman Alicia Huey. “However, builders are still challenged by ongoing supply-chain issues and a skilled labor shortage.”
“We expect choppiness for single-family construction in the months ahead, with the 2023 data posting significant year-over-year weakness before improving on a sustained basis,” said NAHB chief economist Robert Dietz. “The multifamily market softened in March, and we anticipate ongoing declines for apartment construction in the months ahead due to tighter lending conditions in the commercial real estate sector.”
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