Housing Starts Rise, Builders Remain Cautious

April 17, 2015

The new-home market continues to make gains, albeit at a gradual pace as some price sensitive buyers remain on the fence, says Tom Woods, chairman of the National Association of Home Builders on the latest new-home data.

Construction of newly built single-family homes edged up 4.4 percent in March month-over-month, while multifamily starts dropped 2.5 percent, the Commerce Department reported Thursday. Overall, nationwide housing starts – which reflect combined starts for the single-family and multifamily sectors – rose 2 percent in March to a seasonally adjusted annual rate of 926,000 units.

"Builders are being careful not to add inventory beyond expected demand, especially as they struggle with increasing costs for lots, labor and materials," says NAHB Chief Economist David Crowe. "However, pent-up demand, low mortgage interest rates, and a growing economy should keep the housing industry moving forward throughout the rest of the year."

Regionally, housing starts posted the highest gains in the Northeast. Combined single- and multifamily housing starts surged 114.9 percent month-over-month in the Northeast, and the Midwest also saw a gain of 31.3 percent in March. Meanwhile, housing starts dropped 19.3 percent in the West and by 3.5 percent in the South.

A slight decline in housing production may be on the horizon, however. Housing permits – a leading indicator of the health of the new-construction industry -- fell 5.7 percent in March, led by a 15.9 percent drop in multifamily permits. Single-family permits, on the other hand, rose 2.1 percent – with the strongest gains in permits in the Northeast.

"There is a continuing under performance of the new-construction market, but it’s still better than where we were," says Jed Smith, managing director of quantitative research at the National Association of REALTORS®.

To return to a more normal market, Smith says builders need to construct 1.5 million to 1.6 million new homes this year. Builders are on track for 1.2 million, he says.

But there's no reason to panic, housing analysts say. Housing permits overall are still up 8 percent from year to date.

"In some regions, we’re seeing double-digit gains," says Jonathan Smoke, realtor.com®’s chief economist. "It shows we’re making progress—it’s not even remotely enough to relieve the inventory shortage, but we’re moving in the right direction."

Source: "Building Permits Drop 5.7% in March, But It’s All Good," realtor.com® (April 16, 2015) and National Association of Home Builders