Housing Start Increase Shows Economic Promise
Data released yesterday (March 16) by U.S. Department of Housing and Urban Development and the U.S. Census Bureau showed that home building increased in February for the first time in five consecutive months, reportedly suggesting that the housing market may be starting to stabilize.
“Despite persistent supply-side challenges, rising builder confidence is signaling a turning point for home building later in 2023,” said National Association of Home Builders Chief Economist Robert Dietz. “Starts were up in February given a limited pullback for interest rates.
“We expect volatility in the months ahead as ongoing challenges related to construction material costs and availability continue to act as headwinds on the housing sector. However, interest rates are expected to stabilize and move lower in the coming months, and this should lead to a sustained rebound for single-family starts in the latter part of 2023.”
Overall housing starts in February increased 9.8% to a seasonally adjusted annual rate of 1.45 million units. According to Bloomberg, this pace of starts exceeded all forecasts in a survey of economists that had a median projection of 1.31 million.
Within this overall number, single-family starts increased 1.1% to a seasonally adjusted annual rate of 830,000. However, this remains 31.6% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 24% to an annualized 620,000 pace.
Building permits, an indicator of future construction, climbed 13.8% to an annualized pace of 1.52 million units, reflecting gains in permits for both single-family and multifamily projects. However, this number is still 17.9% below the rate this time last year.
Breaking this number down, single-family authorizations were at a rate of 777,000, while authorizations of units in buildings with five units or more were at a rate of 700,000.
The number of home completions also surged in February, rising more than 12% to a 1.56 million pace. Reports indicate that this number, led by a jump in multifamily projects, is the fastest pace since 2007.
On a regional basis compared to the previous month, combined single-family and multifamily starts were 16.5% lower in the Northeast, 70.3% higher in the Midwest, 2.2% higher in the South and 16.8% higher in the West.
The full Monthly New Residential Construction report can be found here.
Builder Confidence Report
The NAHB also reported earlier this week in its Housing Market Index (HMI) that builder confidence in the market rose 2 points to 44, marking the third straight monthly increase in builder sentiment levels.
The HMI index gauging current sales conditions in March rose two points to 49, and the gauge measuring traffic of prospective buyers increased three points to 31. This indicated the strongest traffic reading since September of last year.
“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” said NAHB Chairman Alicia Huey.
“But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”
According to the release, the HMI survey shows that builders had better than anticipated new home sales during the past two months because of continued use of incentives and price discounts.