Housing Starts Fall on Interest Rate, Financing Concerns

Housing starts fell in March with interest rates somewhat higher than expected last month as the latest inflation readings failed to show improvement. Builders are also still facing higher supply-side costs and tighter lending conditions.

Overall housing starts decreased 14.7% in March to a seasonally adjusted annual rate of 1.32 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The March reading of 1.32 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 decreased 12.4% to a 1.02 million seasonally adjusted annual rate. Single-family starts are up 21.2% 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, decreased 21.7% to an annualized 299,000 pace for 2+ unit construction in March. The three-month moving average for multifamily construction has trended lower to a 346,000-unit annual rate. On a year-over-year basis, multifamily construction is down 44.3%.

On a regional and year-to-date basis, combined single-family and multifamily starts are 14.0% higher in the West, 6.0% higher in the Midwest, 0.4% lower in the South, and 21.7% lower in the Northeast.

As an indicator of the economic impact of housing, there are now 689,000 single-family homes under construction; this is 2.7% lower than a year ago. Meanwhile, there are currently 957,000 apartment units under construction; This is down 1.5% compared to a year ago (972,000). Total housing units now under construction (single-family and multifamily combined) are 2.0% lower than a year ago.

While apartment construction starts are down, the number of completed units entering the market is rising due to prior elevated construction levels. The pace of completions for apartments in buildings with five or more units is up 27.4% for the first quarter of 2024 compared to the first quarter of 2023. A higher pace of completions in 2024 for multifamily construction will place some downward pressure on rent growth.

Overall permits decreased 4.3% to a 1.46 million unit annualized rate in March but are up 1.5% compared to March 2023. Single-family permits decreased 5.7% to a 973,000 unit rate but are up 17.4% compared to the previous year. Multifamily permits decreased 1.2% to an annualized 485,000 pace and are down 20.2% compared to March 2023, which is a sign of future apartment construction slowing.

Year-to-date, permits are 34.5% higher in the Northeast, 11.3% higher in the Midwest, 1.0% higher in the West, and 0.9% lower in the South.