Coverage: Housing starts rise faster than expected in March

U.S. homebuilding rose more than expected in March amid a rebound in the construction of multi-family housing units, but weakness in the single-family segment suggested an acute shortage of homes for sale will likely persist.

Lucia Mutikani of Reuters had the news:

Other data on Tuesday showed a solid increase in industrial production last month as cold weather boosted utilities output and production at mines surged. The reports underscored the economy’s underlying strength even though growth in the first quarter is expected to have slowed after three straight quarters of brisk expansion.

“This continues the theme that the output and labor data paint a stronger picture of the economy than we expect first-quarter real GDP to do in part because of a seasonal bias we believe exists in the GDP data,” said John Ryding, chief economist at RDQ Economics in New York.

Housing starts rose 1.9 percent to a seasonally adjusted annual rate of 1.319 million units, the Commerce Department said. Data for February was revised up to show groundbreaking declining to a 1.295 million-unit pace instead of the previously reported 1.236 million units.

Sho Chandra of Bloomberg News reported that worker shortages and rising costs are affecting the market as well:

The strength in March was concentrated in multifamily construction such as apartment buildings. That category tends to be volatile; March’s advance in starts followed a 10.2 percent drop in the prior month. Permits for single-family homes were a weak spot, dropping 5.5 percent, the biggest decline in seven years, to the lowest level since September.

While demand remains solid, a shortage of workers, rising costs for materials and a scarcity of ready-to-build lots are limiting gains in building activity. With borrowing costs rising, affordability is also becoming a hurdle, as property values outpace potential buyers’ income growth.

Sentiment among homebuilders fell in April for a fourth straight month amid limited land availability and higher lumber prices, according to data Monday from the National Association of Home Builders/Wells Fargo.

Nevertheless, sentiment remains elevated, and in an indication that builders will remain busy in coming months, the number of homes under construction at the end of March reached 1.125 million, the highest level since July 2007. Single-family dwellings under construction inched up to 504,000, the most since mid-2008.

Andrea Riquier of MarketWatch.com reported that demand is high:

“Housing has not led this economic cycle; it’s not about to start now,” said Ian Shepherdson, chief economist for Pantheon Macro, after the release of the NAHB sentiment numbers Monday.

But that’s the supply side of the equation. Demand is hot after years of underbuilding. On Tuesday, Zillow said it took an average of 81 days to sell a home in 2017, the fastest on record.

Builders aren’t just keeping buyers hungry with low supply. They’re constrained by higher-priced materials, and less-available labor and land. Ward McCarthy, the chief financial economist for Jefferies, noted that the number of homes under construction is the highest since July 2007, so some moderation in the pace of housing starts is “understandable.”

And Jim O’Sullivan, chief U.S. economist for High Frequency Economics, said that at least in the single-family area, “Momentum may be cooling a little,” as evidenced by the home-builder sentiment survey released Monday.