Housing Starts Drop From February Rally

Privately-owned housing starts plunged in March to a seasonally adjusted rate of 1.32 million—14.7% below the February estimate of 1.54 million—and 4.3% below the March 2023 rate of 1.38 million, according to the latest report from the Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

And while starts of new single-family homes are still up a notable 21.2% from a year ago (1.02 million), they’re down from the February figure of 1.16 million—by a pressing 12.4%. Multifamily housing starts are down quite drastically from last year as well.

Additionally, low inventory has seriously dampened the national market, remaining relatively low compared to previous years. Although Bright MLS Chief Economist Dr. Lisa Sturtevant believes that the spring and summer should provide more opportunities for buyers, because homebuilding activity is still proving somewhat strong despite national challenges.

“Inventory has been a major constraint on the housing market, and new construction has been an outsized share of the market,” she said. “With homebuilding activity still strong, buyers are now also seeing more listings of existing homes coming onto the market. While overall inventory is still low by historical standards, this spring and summer should offer buyers more options. Builders who may have held back on incentives or price cuts might be looking for ways to entice homebuyers who are shopping existing homes.

“The median price of an existing home rose by 5.85% in February, the biggest gain in 18 months,” added Sturtevant. “Prices of new homes, however, fell in February, down 7.6% year-over-year.”

According to Danushka Nanayakkara-Skillington, the National Association of Home Builders’ (NAHB) assistant vice president for forecasting and analysis, inflation and higher interest rates are also at the forefront of what’s hurting builders—higher interest rates indicate more expenses for builders, with much tighter financial constraints. 

“Single-family starts were down in March as interest rates increased and multifamily production fell as builders faced tighter financing conditions,” she said. “And with single-family permits also down in March, single-family production will likely decline again in April.”

“Builders are grappling on several fronts as the inflation fight continues,” said NAHB Chairman Carl Harris—a custom homebuilder from Wichita, Kansas. “Higher interest rates are increasing the cost of housing for prospective homebuyers and raising the development and construction cost for builders of homes and apartments. At the same time, shelter inflation is rising faster than overall prices due to supply-side challenges.”

According to NAHB, In March, permits decreased 4.3% to a 1.46 million unit annualized rate, while single-family permits decreased 5.7%—to a 973,000 unit rate—and multifamily permits decreased 1.2%—to an annualized 485,000 pace.

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