- U.S. housing starts rose by 19.4% to 1.74 million units (annualized) in March from an upwardly-revised 1.42 million units in the month prior. The outturn came in well above market expectations, which called for a milder increase to 1.60 million units.
- Single-family starts rose by 15.3% (or 164k) to 1.24 million units, while starts in the smaller and more volatile multi-family segment rose by 30.8% (or 118k) to 501k units.
- Permitting activity also pushed higher, with total building permits up 2.7% to 1.77 million in March. Single-family permits rose by 4.6% to 1.20 million units. Multifamily permits, meanwhile, fell by 1.2% to 567k units, with March marking their second consecutive monthly decline.
- Housing starts improved across most regions. The Midwest (+122.8%) led the way, followed by the Northeast (+64.0%) and the South (+13.5%). The West was the only region to record a decline in March, with housing starts down 13.6% on the month.
Key Implications
- After a weak showing in the first two months of the year, homebuilding activity finally reversed course in March, as both single-family and multifamily stars surged higher. Last month’s sizable increase likely also reflects the making up of lost ground in February, which was weighed down by severe winter weather that affected many parts of the country.
- An improving economic backdrop, on account of rising vaccinations and the latest stimulus package, bodes well for homebuilding activity. Meanwhile, the fact that existing home inventory currently sits at a record low is an added element that supports the putting of more shovels to the ground. The path forward, however, is not without hurdles. Besides the capricious nature of the health crisis, which could result in some more near-term volatility, the housing affordability channel will also bear careful watching.
- Home prices are growing at a rapid double-digit pace compared to a year ago. Meanwhile, increased costs of key materials that tend to be passed down to the consumer, such as copper and lumber – the latter has nearly tripled from its pre-pandemic level – will not help. The expectation for mortgage rates to grind higher in the quarters ahead is yet an added headwind from an affordability perspective. Putting the pieces together, homebuilding activity is likely to remain elevated as the labor market healing continues, but these headwinds will hold it back from rising much higher from current levels.
