Moderating Interest Rates, Pent-up Demand Push Single-Family Starts Higher

Pent-up demand, moderating interest rates, and a lack of existing inventory helped push single-family starts in February to their highest level since April 2022.

Overall housing starts increased 10.7% in February to a seasonally adjusted annual rate of 1.52 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The February reading of 1.52 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 11.6% to a 1.13 million seasonally adjusted annual rate. Single-family starts are also up 35.2% compared to a year ago. The three-month moving average (a useful gauge given recent volatility) is up to over 1.0 million starts, as charted below.

The multifamily sector, which includes apartment buildings and condos, increased 8.3% to an annualized 392,000 pace for 2+ unit construction in February. The three-month moving average for multifamily construction has been trending up to a 419,000-unit annual rate. On a year-over-year basis, multifamily construction is down 34.8%.

On a regional basis compared to the previous month, combined single-family and multifamily starts are 10.3% lower in the Northeast, 50.7% higher in the Midwest, 15.7% higher in the South and 7.9% lower in the West.

As an indicator of the economic impact of housing, there are now 683,000 single-family homes under construction; this is 6.1% lower than a year ago. Meanwhile, there are currently 983,000 apartment units under construction. This is up 2.5% compared to a year ago (959,000). Total housing units now under construction (single-family and multifamily combined) are 1.2% lower than a year ago.

Overall permits increased 1.9% to a 1.52 million unit annualized rate in February and are up 2.4% compared to February 2023. Single-family permits increased 1.0% to a 1.03 million unit rate and are up 29.5% compared to the previous year. Multifamily permits increased 4.1% to an annualized 487,000 pace but multifamily permits are down 29.0% compared to February 2023, which is a sign of future apartment construction slowing.

Looking at regional permit data compared to the previous month, permits are 36.2% higher in the Northeast, 3.8% higher in the Midwest, 1.3% lower in the South and 6.8% lower in the West.