A surge in new home construction to a 13-month high is being overshadowed by a sharp decline in permits for future building, painting a mixed picture of the U.S. housing market's health.
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US housing starts jump 10.8% in March, but permits signal weakness
U.S. housing starts jumped 10.8 percent in March, significantly outpacing economist forecasts and suggesting pockets of strength in the construction sector. The Commerce Department reported Wednesday that new residential construction rose to a seasonally adjusted annual rate of 1.502 million units, well above the 1.40 million expected by economists polled by The Wall Street Journal.
The robust headline number was driven by a surge in single-family homebuilding, which climbed 9.7 percent to its highest level in 13 months. However, a sharp drop in permits for future construction is raising questions about the sustainability of the rebound, pointing to continued caution among builders facing higher costs and interest rates.
The data presents a complex picture for the U.S. economy. While single-family starts rose to a rate of 1.032 million units, permits for future single-family homes fell 3.8 percent to a rate of 895,000. Overall building permits tumbled 10.8 percent, dragged down by a 23.5 percent plunge in the volatile multi-family segment. This divergence suggests that while builders are working through existing project backlogs, their appetite for starting new ones is waning.
This dynamic creates a challenge for the Federal Reserve. A resilient housing market can fuel economic activity but may also contribute to inflationary pressures, potentially delaying any plans to lower interest rates. The housing data comes just a day before the government releases its initial estimate for first-quarter gross domestic product, where residential investment is widely expected to have contracted for the fifth consecutive quarter.
Builders are contending with a difficult environment. A recent survey from the National Association of Home Builders showed deteriorating confidence in April, with members reporting that suppliers had increased building material costs due to higher fuel prices.
Furthermore, the 30-year fixed-mortgage rate has climbed from below six percent in late February to an average of 6.23 percent last week, according to Freddie Mac data. Higher borrowing costs for buyers and builders alike serve as a significant headwind for the market's recovery. The March jump in starts may therefore represent a temporary acceleration before the full impact of rising rates and costs is felt.
This article is for informational purposes only and does not constitute investment advice.
