Production of single-family homes is on an upswing in the new year as recent data from the U.S. Census Bureau shows another month of increases in starts, permits and competitions.
According to the latest new residential construction data from the U.S. Census Bureau, housing starts were at a seasonally adjusted annual rate of 1,420,000 in March, 0.8% below the February rate of 1,432,000 and 17.2% below last year’s rate of 1,716,000.
Despite the dip in overall starts, single‐family housing starts saw a slight increase of 2.7% from 838,000 in February to 861,000 in March.
According to onlookers and experts, the uptick could be a breath of fresh air for frustrated buyers who are still dealing with affordability challenges and a lack of existing homes for sale.
“Buyers who might not have been in the market for a new home this spring may find themselves on the lot of a new subdivision as the availability of existing homes for sale remains very limited,” said Bright MLS Chief Economist Dr. Lisa Sturtevant in a statement. “Nationally, new homes account for about one out of three homes available for sale in April, up from one out of 10 homes in a more typical housing market.
“More new housing inventory could be a welcome sign for frustrated homebuyers. Still, the number of new homes coming onto the market will do little to make a dent in the supply shortfall or improve prices, particularly for first-time buyers,” she added.
Sturtevant also acknowledged that multifamily construction provided some “positive news” for would-be renters who have already started seeing rent growth moderate in recent months.
While the pace of starts for units in buildings with five units or more—which generally includes apartment buildings—came in at 542,000, down from last month’s 608,000, Sturtevant noted that construction has been running at a faster pace than last year.
Housing completions dipped slightly in March, down 0.6% from February, but were up 12.9% annually. The share of finished single-family homes climbed 2.4% in March.
Pundits within the homebuilder sector suggest that recent data show that the new construction may be turning a corner even with persisting supply chain issues and labor shortages.
“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 Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom homebuilder and developer from Birmingham, Alabama.
On a regional and year-to-date basis, combined single-family and multifamily starts were 8.3% lower in the Northeast, 34.5% lower in the Midwest, 11.5% lower in the South and 28.2% lower in the West.
Permits decreased by 8.8% in March to a 1.41 million unit annualized rate. Single-family permits increased 4.1% to an 818,000 unit rate, but are down 29.7% compared to a year ago. Multifamily permits decreased 22.1% to an annualized 595,000 pace.
Looking at regional permit data on a year-to-date basis, permits were 24.5% lower in the Northeast, 25.3% lower in the Midwest, 15.7% lower in the South and 28.1% lower in the West.
“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.”
March’s performance pushes first quarter construction moderately above forecast, according to Fannie Mae experts who suggest that demand for housing proves to be more resilient than they’d 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),” said Doug Duncan, chief economist for Fannie Mae in a statement.
Duncan added that many homebuyers are turning to new homes because of “an extremely limited supply” of existing homes for sale.
“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,” he said.
The latest readings provide the first glimpse at how the new construction sector fared since several bank collapses and government bailouts earlier in March. According to Duncan, it’s still unclear how much, if at all, recent banking turmoil and tighter credit conditions affected these data.
“On one hand, mortgage rates pulled back, which could spur some additional single-family demand,” he said. “However, tighter credit conditions would result in homebuilders having a harder time financing new projects, which would weigh on future construction activity.”
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