The severe inventory shortage afflicting the resale market has prompted homebuilders to ramp up construction to activity levels not seen since 2006.
According to the Census Bureau’s latest new residential construction report, housing starts rose 19.4 percent from February to March at a seasonally adjusted annual rate of 1.74 million units. Compared to the same period last year, housing starts were up by 37 percent, a testament to the housing market’s impressive rebound.
Single-family housing starts increased by 15.3 percent month-over-month to 1.24 million annualized units. Multi-family housing starts, defined as projects with five or more units, accelerated to the fastest pace since February 2020, climbing 30.8 percent above the previous month to 501,000 annualized units.
Although the February cold snap that swept the central United States likely inflated these figures by causing homebuilders to delay construction until March, Fannie Mae Chief Economic Doug Duncan believes the outlook for the new construction segment is promising.
“An extremely tight supply of existing homes for sale combined with still-favorable mortgage rates and an improving labor market will continue to support demand for new housing,” said Duncan in a statement.
Building permits, an indicator of future housing starts, amounted to 1.77 million annualized units — up 2.7 percent from February and 30.2 percent from March 2020. Of these, 1.12 million were single-family authorizations, a 4.6 percent month-over-month increase, and 508,000 were for multi-family units.
Following weather-related setbacks, housing completions jumped 16.6 percent above February to a seasonally adjusted annual rate of 1.58 million units. This also marked a 23.4 percent improvement over March 2020, although construction activity during the latter half of that month was impeded by COVID-19 lockdowns. Single-family housing completions rose 5.3 percent on a monthly basis to 1.10 million units, while multi-family completions totaled 476,000 units.
Despite surging lumber prices, which have shot up 193 percent year-over-year, demand for new construction housing is expected to remain strong in the short term. As COVID-19 related restrictions ease and employees return to the office, we are likely to see a slight pullback in the market.
“For now, however, the extremely tight supply of existing homes for sale and an elevated level of new homes sold but not yet constructed will help bolster a strong construction pace moving into the spring buying season,” concluded Duncan.