WASHINGTON (Reuters) – Single-family home building in the United States increased for the second straight month in March, while future building permits rose, providing some glimmers of hope for the flagging housing market ahead of the busy spring selling season.
The improvement in the single-family housing market segment, reported by the Commerce Department on Tuesday, likely reflects buyers benefiting from lower mortgage rates. Monday’s survey showed that lower mortgage rates and less supply of previously owned homes are supporting the new local market.
“Mortgage rates have eased from their peak in October/November, which helped provide a jolt to demand and sales activity,” said Ben Ayers, chief economist at Nationwide in Columbus, Ohio. “But the environment remains challenging with high input and labor costs for builders and expensive financing options for buyers.”
Single-family housing starts, which account for the bulk of home construction, rose 2.7% to a seasonally adjusted annual rate of 861,000 units last month. Data for February was revised higher to show single-family home construction rose to a rate of 838,000 units from the previous rate of 830,000 units.
Single-family home construction increased 4.4% in the Northeast and rose 23.6% in the Midwest. It advanced 4.8% in the densely populated South, but fell 16.0% in the West. Single-family housing starts fell 27.7% year over year in March.
Sharp interest rate increases by the Federal Reserve have pushed the housing market into recession, with residential investment contracting for seven straight quarters, the longest such streak since the collapse of the housing bubble that resulted from the Great Recession of 2007-2009.
However, there are signs that the housing market is stabilizing at very low levels. The National Association of Home Builders/Wells Fargo housing market index rose to a seven-month high in April.
Mortgage rates have fallen from last year’s highs, with the popular 30-year average mortgage rate falling from a peak of 7.08% in early November to 6.27% last week, according to data from mortgage agency Freddie Mac.
These rates fell along with US Treasury yields on the hope that the Fed will not continue to raise borrowing costs beyond next month amid signs that the economy was slowing.
But the recent financial turmoil that followed the collapse of two regional banks may lead to banks and mortgage lenders tightening underwriting standards.
“Tighter credit terms will result in homebuilders having difficulty financing new projects, which will affect construction activity going forward,” said Doug Duncan, chief economist at Fannie Mae.
Stocks on Wall Street traded lower. The dollar fell against a basket of currencies. US Treasury bond prices rose.
High achievers
The starts of residential projects with five units or more decreased by 6.7%, to 542 thousand units. Multi-family housing construction continues to be supported by rental housing demand. However, economists see that the scope is limited to achieve more gains, pointing to the increase in the number of empty apartments. The stock of multi-family homes under construction has reached record levels.
“There’s a hint here that the baton may be moving from construction for leases to building for a home,” said Conrad D. Quadros, chief economic advisor at Bryan Capital in New York. “None of this indicates a strong recovery in housing activity, but it does support the view that the worst of the declines may be behind us for now.”
With declines in multi-family homebuilding offsetting a rise in single-family projects, total starter housing fell 0.8% to a rate of 1.420 million units last month.
Economists polled by Reuters had forecast starts falling to a rate of 1.40 million in March.
Single-family building permits jumped 4.1% to a rate of 818,000 units in March, the highest level in five months. They went up in the Northeast, South and West, but were unchanged in the Midwest.
Permits for residential projects consisting of five units or more decreased by 24.3%, to 543 thousand units. Overall, building permits fell 8.8% to 1.413 million units.
The number of homes approved for construction yet to begin fell 3.0% to 291,000 units. Backlogs of single-family home construction fell 2.3% to 130,000 units, the lowest level since February 2021, while the completion rate for this segment increased 2.4% to a rate of 1,050 million units.
The stock of single-family homes under construction fell 2.3% to an average of 716,000 units, the lowest level since August 2021.
“The housing sector looks set to run out of some new inventory in the coming months,” said Colin Johansson, an economist at Barclays in New York.
(Reporting by Lucia Mutikani) Editing by Chizu Nomiyama
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