Housing Starts Post A Disappointing Rise in March

Housing starts rose 2.0 percent in March, which was much less than expected. Single-family starts rose 4.4 percent, while multifamily starts fell 2.5 percent. Harsh winter weather once again likely held back starts. 

Not Much of a Bounce Back

Housing starts rose 2.0 percent in March, which does not come close to compensating for February’s 15.3 percent plunge. Market expectations had called for a rebound to back above the psychologically important 1.0 million unit mark, but March was simply too soon to see such a rebound.

Starts did rebound in the Northeast, with the pace of overall starts surging nearly 115 percent from the prior month and the pace of single-family starts doubling. Housing starts also rebounded strongly in the Midwest. Unfortunately, the Northeast and Midwest account for far less building activity than the South and the West, where the weather turned harsh in March. Starts in the West tumbled 19.3 percent during March, with much of the drop occurring in the multifamily sector. The South, which accounts for about half of all housing starts and an even larger proportion of singlefamily starts, saw starts fall 3.5 percent during the month.

We continue to look for stronger gains in 2015 and are not backing away from our prediction that home building will be one of the economy’s largest upside surprises in 2015. While admittedly that is bold claim on a day when starts came in about 10 percent below expectations, the anecdotal data from builders remains unambiguously positive. The April National Association of Homebuilders/Wells Fargo Housing Market Index rose 4 points to 56, with confidence highest in the South and the West.

Even with the weather-induced weakness, homebuilding is off to a slightly better start than last year, when the weather was much worse. Overall starts through the first three months of 2015 are running 3.9 percent ahead of their year-ago level and single-family starts are up 4.5 percent. Permits are up even more, with overall permits through March up 8.0 percent from the prior year and single-family permits up 7.7 percent. Moreover, permits through March are running 12.2 percent above starts, suggesting that we should see some catch-up in starts in coming months.

Bad weather is not the only thing holding back homebuilding. Builders are continuing to face a great deal of difficulty securing attractive lots, complying with stricter development rules, securing building materials and finding skilled workers in many markets. Construction employment has increased 4.9 percent over the past year and the number of construction job openings has increased by a whopping 36.1 percent.

Not only has the harsh winter weather negatively impacted housing starts, but it has also taken a toll on housing completions and the number of homes under construction. Housing completions fell 3.9 percent in March, following a 12.0 percent plunge the prior month. The number of singlefamily homes under construction has fallen for two straight months. The weakness suggests residential construction activity declined slightly during the first quarter, presenting another drag on first quarter GDP growth.