March Housing Starts Dip Slightly

Housing starts fell slightly in March following a strong February report, HUD and the Census Bureau reported Friday.

The report said privately owned housing starts in March fell to a seasonally adjusted annual rate of 1.139 million, 0.3 percent below the revised February estimate of 1.142 million and 14.2 percent lower than a year ago (1.327 million). Single‐family housing starts in March fell by 0.4 percent to 785,000; the March rate for units in buildings with five units or more rose slightly to 337,000.

Regionally, starts fell everywhere except the West, which saw a 31.4 percent surge in March, seasonally annually adjusted, to 318,000 units from 242,000 units in February but fell by nearly 20 percent from a year ago.

In the South, starts fell by 7.2 percent to 604,000 units in March, seasonally annually adjusted, from 651,000 units in February and fell by 4.1 percent from a year ago. In the Midwest, starts fell by nearly 18 percent to 131,000 units in March from 159,000 units in February and fell by 28 percent from a year ago. In the Northeast, starts fell by 4.4 percent to 86,000 units in March from 90,000 units in February and fell by 28.3 percent from a year ago.

“Housing construction disappointed in March and was mainly held down by an underperforming number for single-family starts,” said Joel Kan, Associate Vice President of Economic and Industry Forecasting with the Mortgage Bankers Association. “At 785,000 units, single-family construction was essentially flat from a downwardly revised total for February, and was overall well below the 2018 pace of around 870,000 units.”

Kan noted despite a strong economy and job market, which continues to spur housing demand, home builders still face challenges such as labor shortages and high labor costs. “These headwinds continue to slow the pace of construction, and on a year-over-year basis, single-family starts have fallen in five of the past six months,” he said. “While severe winter weather in the Midwest likely led to the significant drop in that region, the overall building trend is not heading into the right direction. There needs to be more new inventory to satisfy the solid buyer demand in most of the country, especially for the lower-priced, first-time buyer segment of the market.”

Odeta Kushi, Deputy Chief Economist with First American Financial Corp., Santa Ana, Calif., said the decline occurred despite more housing supply being added to the market.

“Home buyers looking for more housing supply to choose from can take heart, as builders completed more homes compared with last year, inching closer to balancing inventory with demand,” Kushi said. “Yet, more is needed to make up for the shortage over the last decade. “The year-over-year decline in single-family residential housing starts is a concern given the increasing demand from Millennial home buyers for this type of construction.”

Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., said housing starts continue to have trouble generating positive momentum, noting drops in starts and permits.

“Lower mortgage rates have had only limited success at reviving home building so far in 2019,” Vitner said. “Housing starts fell for the second consecutive month and have fallen in six of the past seven months.”

However, Vitner expressed doubts that home building has lost as much momentum as first quarter data indicate. “Home building confidence has been rebounding and builders’ assessments of buyer traffic and their expectations for single-family home sales over the next six months have improved slightly,” he said. “The rebound in builder optimism still comes up well short of the previous highs, however, suggesting that lower mortgage rates have moderated last year’s sharp pullback in home sales and builder expectations but have not reversed it.”

The report said privately owned housing units authorized by building permits in March fell to a seasonally adjusted annual rate of 1.269 million, 1.7 percent lower than February’s revised 1.291 million and nearly 8 percent lower than a year ago. Single‐family authorizations in March fell by 1.1 percent to 808,000; authorizations of units in buildings with five units or more were at a rate of 425,000.

HUD/Census said privately owned housing completions in March fell to a seasonally adjusted annual rate of 1.313 million, nearly 2 percent lower than the revised February estimate (1.338 million) but nearly 7 percent higher than a year ago. Single‐family housing completions in March rose by 12 percent to 938,000; the rate for units in buildings with five units or more was 364,000.