U.S. single-family housing starts are rebounding from a discouraging start to the year that was affected by elevated mortgage rates and unusually cold temperatures, particularly in the construction-heavy Deep South.
Builders started a seasonally adjusted 1.501 million homes in February, up 11.2% from the revised January total. But that is 2.9% below the number of housing starts in February 2024, according to figures the U.S. Census Bureau and the Department of Housing and Urban Development released Tuesday. Single-family starts rose by roughly the same amount on a monthly basis in February and reached the highest level in a year.
In mid-January, a historic winter storm hit parts of the South, including northern Florida and the Panhandle, and brought snow to some areas for the first time in years. Also, despite a small increase last week, mortgage rates had been falling since briefly eclipsing 7% in January.
Tuesday's government report comes a day after the National Association of Home Builders said homebuilder confidence fell in March to the lowest level since August on tariff and affordability concerns.
Affordability constraints and housing policy uncertainty have left many consumers reluctant to buy, according to Odeta Kushi, deputy chief economist at First American, a title insurance and settlement services firm. She noted that material costs are 40% higher than pre-pandemic levels, making construction more expensive.
"Unfortunately, in the near term, given what we’ve seen with the deterioration in home builder sentiment, the rebound could be short-lived," Kushi said in an email.
But Kushi also said builders are showing cautious optimism regarding policy that would reduce inefficient regulatory costs for construction. What's more, the housing market faces a persistent shortage of units, "opening up an opportunity to 'build' the gap between supply and demand," she said.
Meanwhile, Kushi said a depleted project pipeline and a likely bump in apartment demand could boost the country's multifamily market.
Housing completions in February totaled a seasonally adjusted annual rate of 1.592 million. That's 4% below the revised January total of 1.659 million and 6.2% off the February 2024 number, according to the U.S. Census and HUD.
On the permit side, the outlook is less encouraging, Wells Fargo said in a report also released Tuesday. The banking giant noted that single-family permits were flat for a second consecutive month. Multifamily permits also dropped.
"That said, the pace of new multifamily permits is essentially moving sideways, which is an improvement over the sharp pullback in multifamily construction over the last couple of years," according to the Wells Fargo report.