Solid Reading for Housing Starts in February

Single-family starts posted a small increase in February, as lack of resale inventory continues to support housing demand despite higher interest rates. The availability of materials, lumber, labor and lots remain key headwinds, with access to labor in particular likely to become more challenging in 2022.

Overall housing starts increased 6.8% in February to a seasonally adjusted annual rate of 1.77 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, permits slipped 1.9%, with small declines for single-family and multifamily authorizations.

The February reading of 1.77 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 5.7% to a 1.22 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, continued to gain ground, rising 9.3% to a 554,000 annual rate.

Due to supply-chain effects, there are 152,000 single-family units authorized but not started construction—up 24.6% from a year ago. The February reading was a four-month high of such delayed starts.

In March, single-family builder confidence decreased two points to a level of 79, according to the NAHB/Wells Fargo Housing Market Index (HMI). After peaking at a level of 90 in November 2020, builders have reported ongoing concerns over elevated lumber, OSB and other construction costs, as well as delays in obtaining building materials. The NAHB forecast projects growing labor shortages as the overall unemployment rate trends lower in the quarters ahead. The March HMI also reported a notable drop in sales expectations six months out, a possible indication of growing demand-side concerns over higher interest rates as the Fed tightens monetary policy.

On a regional basis compared to the previous month, combined single-family and multifamily starts are 28.7% higher in the Northeast, 15.3% higher in the Midwest, 11.4% higher in the South and 11.4% lower in the West.

As an indicator of the economic impact of housing, there are now 799,000 single-family homes under construction. This is 28% higher than a year ago. There are currently 784,000 apartments under construction, up 18% from a year ago. Total housing units now under construction (single-family and multifamily combined) is 23% higher than a year ago. The number of units under construction is rising on both the total volume of construction, as well as longer construction times.