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Housing starts in March fell to the slowest pace in almost two years, according to a report from the Department of Housing and Urban Development and the Department of Commerce.
Residential starts slumped 0.3% to a 1.139 million annualized pace after a downwardly revised 1.142 million rate in the prior month, according to the report.
The decrease was led by single-family starts while multifamily starts, a category including condominiums and apartments that tends to be more volatile, remained unchanged from the prior month. Permits, an indicator of future construction, fell 1.7% to a 1.27 million rate.
The report shows the new-home market, which represents about 10% of U.S. residential real estate sales, is struggling to meet demand for affordable properties as builders deal with labor shortages and costly supplies. A decline in mortgage rates since the end of last year has brought more buyers into the housing market, according to data from the Mortgage Bankers Association. Applications for loans to purchase homes rose to the highest level in nine years this month, according to the group.
“Higher mortgage rates at the end of last year and volatile lumber prices took the wind out of the sails of the construction industry,” Robert Dietz, chief economist for the National Association of Home Builders, said in an interview. “We haven’t yet seen housing construction data reflect the positive impact we expect to see from lower mortgage rates.”
Builder confidence is on the rise, a sign that next month’s data will probably show an improvement and may include an upward revision to the numbers in the current report, said Dietz. Earlier this week, NAHB issued a report showing its seasonally adjusted index measuring confidence level of builders rose as traffic to new developments increased. The National Association of Home Builders/Wells Fargo Housing Market Index increased to 63 points in April from 62 in March.
“We’re seeing a stabilization in builders sentiment but the March construction numbers don’t reflect that yet,” Dietz said.
Today’s construction report showed three of four U.S. regions posted declines in housing starts led by a 17.6% drop in the Midwest, where rain and melting snow caused widespread flooding in March. Housing starts in the South fell 7.2%, in the Northeast they fell 4.4%, and in the West they rose 31.4%, according to the report.