March Housing Starts Take a Dip

Housing starts tumbled in March but remained strong compared to a year ago, HUD and the Census Bureau reported yesterday.

The report said privately owned housing starts in March fell to 1.215 million on a seasonally adjusted annual rate, 6.8 percent below February’s revised estimate (1.303 million) but 9.2 percent higher than a year ago (1.113 million). Single-family housing starts in March fell to 821,000, 6.2 percent lower than February (875,000). Starts for units in buildings with five units or more fell to 385,000, a 6.1 percent drop from February.

Regionally, only the Northeast (the smallest region) saw improvement, with housing starts rising by nearly 13 percent to 131,000 units in March from 116,000 in February, although starts fell by nearly 15 percent from a year ago. In the South, starts fell by nearly 3 percent to 645,000 units in March from 664,000 units in February but improved by 19.4 percent from a year ago. In the West, starts dropped by 16 percent to 284,000 units in March from 338,000 in February but improved by 9.2 percent from a year ago. In the Midwest, starts fell by 16.2 percent in March to 155,000 units from 185,000 in February and fell by 2.5 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted mild weather in February pulled construction forward, likely resulting in the March drop.

“The pullback in March comes after a strong 1.303 million unit pace in February, which received a boost from mild weather allowing more projects to get underway than years past,” Vitner said. “The early start to the spring building season will likely continue to result in more volatile seasonally adjusted data in spring months.”

Building permits rose in March. The report said privately owned housing units authorized by building permits in March rose to a seasonally adjusted annual rate of 1.260 million, 3.6 percent higher than the revised February rate (1.216 million) and 17.0 percent higher than a year ago (1.077 million). Single-family authorizations in March fell to 823,000 from February (832,000); authorizations of units in buildings with five units or more rose to 401,000 in March, up by 18.3 percent from February and by 26.1 percent from a year ago.

Housing completions rose as well, the report said. Privately owned housing completions in March rose to a seasonally adjusted annual rate of 1.205 million, 3.2 percent higher than February’s 1.168 million and 13.4 percent higher than a year ago (1.063 million). Single-family housing completions rose to 819,000 in March, 7.9 percent higher than February (759,000); the March rate for units in buildings with five units or more fell to 374,000, down by 4.6 percent from February but up by 15.4 percent from a year ago.

Vitner said underlying fundamentals, including an “incredibly lean” supply of existing homes for sale in many markets and continued improvement in the labor market, support continued strength in home builders’ confidence in the new home market in 2017.

“Reports from recent consumer sentiment surveys also suggest more people feel that now is a good time to buy a home,” Vitner said. “Moreover, higher mortgage rates since the election do not appear to be weighing much on mortgage applications, which hit a cycle high in April. Taken together, construction is set to play a more significant role in economic growth in 2017.”

“Today’s Census Bureau report for March is good news for the housing market,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif. “The pace of housing completions, 1.2 million, is particularly important as it represents the new housing supply that the housing market sorely needs. Since 2009, new housing supply has been falling short of housing demand.”

Fleming noted Millennial household formation is beginning to have meaningful impact on housing demand and will likely only increase. “Until new and affordable supply finds its way into the housing market, expect low inventories of homes for sale and faster rising prices,” he said.