- Housing starts rose to an annual rate of 1.79 million in March, the Commerce Department said.
- That beat the median forecast for a pace of 1.75 million and marked the fastest construction since 2006.
- The reading signals home supply could soon rebound after hitting historic lows through the pandemic.
Homebuyers, rejoice. Contractors are picking up some of the extraordinary slack in the housing market.
US housing starts unexpectedly rose in March to a seasonally adjusted annual rate of 1.79 million units, the Commerce Department announced Tuesday morning. Economists surveyed by Bloomberg expected starts to fall slightly to a pace of 1.75 million. The March rate marks the fastest since 2006 and a second consecutive monthly improvement.
The jump was fueled by faster construction of multifamily units. The category saw annual construction leap to an annual pace of 574,000 units from the prior month's reading of 534,000 units. Single-family construction slowed, though still showed the second-fastest pace of construction since March 2021.
Building permits — seen as a helpful forward indicator for residential construction — rose slightly to an annual rate of 1.87 million, according to the report. That similarly beat forecasts that called for a decline to a 1.83 million-permit pace.
The uptick is a welcome sign for Americans struggling to buy a home in the supply-starved market. Home prices surged at breakneck speed early in the pandemic as strong demand quickly pulled nationwide inventory to record lows. Bidding wars on the few homes still available boosted prices even higher. The S&P Case-Shiller Home Price Index — which tracks prices nationwide — rose 19.2% in the year through January, landing just below last year's record highs and well above the home inflation seen before the market bubble burst in the late 2000s.
The acceleration in home construction is the latest signal the market is on the mend. While the reading is somewhat volatile and the pace of construction could quickly reverse course, the increase hints builders are rushing to meet demand.
The Tuesday report signals a rosy outlook for homebuilders, but firms still see trouble ahead. The National Association of Home Builders' measure of contractor confidence fell to 77 from 79 in April, the organization said Monday, reflecting a fourth straight monthly decline. Builders cited weakening sales traffic and lingering supply-chain issues for their soured moods. The market now faces an "inflection point," with sky-high housing costs starting to dent demand just as inventory is on the rise, Robert Dietz, chief economist at NAHB, said in a statement.
Builders will want to move fast before buying activity slows. Mortgage rates have soared roughly 2 percentage points since the end of 2021 as the Federal Reserve has begun raising broad interest rates in an effort to slow sky-high inflation.
That marks one of the fastest mortgage rate rebounds in history. It's "only a matter of time" before soaring rates bite into housing demand and quickly cool the market, Doug Duncan, chief economist at Fannie Mae, said Tuesday. Still, order backlogs, strong profits for homebuilders, and the lack of existing supply should keep construction "resilient" in the near term, he added.
Rising mortgage rates will almost surely slow the construction boom later in the year as contractors aim to keep the supply-demand balance in their favor. But the March building data suggests supply is bouncing back, and that the homebuying nightmares of the past year might not be so common through 2022.