The numbers: New-home construction surged after winter weather had caused a slowdown in February, at a time when the housing market desperately needs more inventory to meet burgeoning demand from first-time buyers.
U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.74 million in March, representing a 19% jump from the previous month’s upwardly-revised figure, the U.S. Census Bureau reported Wednesday. Compared with March 2020, housing starts were up a notable 37%.
The pace of permitting for new housing units also increased in March, albeit by a smaller amount. Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.77 million, up 2.7% from February and 30% from a year ago.
Economists polled by MarketWatch had expected housing starts to occur at a pace of 1.62 million and building permits to come in at a pace of 1.75 million.
What happened: Housing starts surged for both single-family homes and multifamily properties, increasing 15% and 30% respectively across the two categories. The largest gains in new-home construction occurred in the Midwest, where housing starts more than doubled on a monthly basis. The Northeast and the South also saw faster rates of new-home construction, while home-building activity slowed in the West.
Building permits were more of a mixed-bag. At the national level over the past month, permits for single-family homes increased nearly 5%, while authorizations for multifamily development dropped by almost 4%. Notably, permits for duplexes, triplexes and quadplexes surged 25.5%, suggesting that cities across the country are looking to encourage higher density neighborhoods to meet the excess demand for housing.
On a regional level, building permits rose in the Midwest and South, but fell in the Northeast and remained flat in the West.
The big picture: Home builders should have a long runway to work with. The pandemic certainly spurred many families to want to move to larger homes. At the same time, millennials have reached the point in life where homeownership becomes attractive — they’re settling down and having kids, prompting a need for more space and stability. All of this creating strong demand for homes.
America’s problem, right now, is there aren’t enough homes to go around. A new analysis from Freddie Mac estimated that the U.S. is 4 million homes short of meeting the demand of home buyers, The Wall Street Journal reported Thursday. And that shortage has increased more than 50% since 2018.
Making matters even worse, until recently sellers have remained on the sidelines of the housing market. They’re facing the same challenges as first-time buyers — if you can’t find another home to buy, you’re not going to sell. In March, there were 117,000 fewer sellers of existing homes.
“There is a strong understanding of the role an increase in new homes plays in today’s housing market and we hope this momentum will continue throughout the year to ensure there are homes to meet the extreme demand from buyers,” said Bill Banfield, Rocket Mortgage’s executive vice president of capital markets.
All in all, builders have plenty of reason to keep constructing new homes at a steady pace. However, rising home prices, due in part to how expensive lumber is, and higher mortgage rates have made affordability a growing challenge for buyers. There’s a risk that some people may exit the housing market for the time being if they cannot find a property they like and can afford.
What they’re saying: “With the cost of lumber reaching new highs, however, the higher costs are being passed on to consumers. While new construction is a critical component in rebalancing the current dynamics, lack of affordability will continue to weigh on the housing market for the remainder of 2021,” said George Ratiu, senior economist at Realtor.com.
“According to the most recently available 2019 data, labor productivity in single-family residential construction (a measure of output per hour) is no more productive than it was 30 years ago. Increasing construction productivity will be key to narrowing the supply-demand gap,” said Odeta Kushi, deputy chief economist for title insurer First American Financial Corp.
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