SINGLE-FAMILY homebuilding in the US tumbled in March, and while new construction remains underpinned by a severe shortage of previously owned houses for sale, a resurgence in mortgage rates is pushing potential buyers to the sidelines.

The report from the Commerce Department this week also showed that permits for future construction of single-family houses fell to a five-month low. Residential investment rebounded in the second half of 2023, after contracting for nine straight quarters, the longest such stretch since the housing market collapse in 2006. But the recovery appears to be losing steam.

Christopher Rupkey, chief economist at FWDBONDS, said: “The housing recovery has stalled for now, as home builder expectations of sharply lower interest rates this year have faded. One thing is for certain, and that is home prices are going to be on an upward, more unaffordable trend without more supply.”

Single-family housing starts, which account for the bulk of homebuilding, dropped 12.4 per cent to a seasonally adjusted annual rate of 1.022 million units last month, the Commerce Department’s Census Bureau said. Data for February was revised higher to show single-family starts rebounding to a rate of 1.167 million units, instead of the previously reported 1.129 million units.

Single-family home building increased 21.2 per cent on a year-on-year basis in March.

Wet weather could have impacted groundbreaking activity last month. Homebuilding fell in the North-east, Midwest and the densely populated South, but rose in the West.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

The latest government data showed there were 757,000 housing units on the market in the fourth quarter, well below the 1.145 million units before the Covid-19 pandemic.

A survey from the National Association of Home Builders (NAHB) on Monday showed that confidence among single-family home builders was unchanged at an eight-month high in April. The NAHB said “buyers are hesitating until they can better gauge where interest rates are headed”.

Housing completions decline

Starts for housing projects with five units or more plunged 20.8 per cent to a rate of 290,000 units, the lowest level since April 2020. Overall housing starts plummeted 14.7 per cent, the biggest drop since April 2020, to a rate of 1.321 million units in March.

Economists polled by Reuters had forecast that starts would fall to a rate of 1.487 million units.

Permits for future construction of single-family homes fell 5.7 per cent to a rate of 973,000 units in March, the lowest level since last October. That likely reflects the recent rise in mortgage rates and suggests slower homebuilding activity ahead.

Multi-family building permits were unchanged at a rate of 433,000 units. Building permits as a whole dropped 4.3 per cent to a rate of 1.458 million units, the lowest level since last July.

Economists expect housing made a small contribution to gross domestic product growth in the first quarter. The fortunes of the housing market are seen tied to upcoming inflation data.

The number of houses approved for construction that were yet to be started rose 0.7 per cent to 273,000 units in March. The single-family homebuilding backlog was unchanged at 141,000 units.

The completion rate for that housing segment declined 10.5 per cent to 947,000 units, suggesting that supply could remain low and keep prices elevated.

Overall housing completions decreased 13.5 per cent to a rate of 1.469 million units. Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month over time to bridge the inventory gap.

Multi-family starts and permits surged in the aftermath of the pandemic, with the building backlog hitting record highs.

“With a typical 1.5-to-two-year time from start to completion, most of these units are being completed,” said Alice Zheng, an economist at Citigroup. “We should see less incoming multi-family supply, which could put pressure on housing prices.” REUTERS