Warm winter giveth to Feb home-building, and takes from it in March

One of the few items that made Wall Streeters give a temporary pause to the thought that interest rate cuts would get delayed was when home-building info showed a sizable drop in activity in March.

Privately‐owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,458,000. This is 4.3 percent below the revised February rate of 1,523,000, but is 1.5 percent above the March 2023 rate of 1,437,000. Single‐family authorizations in March were at a rate of 973,000; this is 5.7 percent below the revised February figure of 1,032,000. Authorizations of units in buildings with five units or more were at a rate of 433,000 in March.

Housing Starts
Privately‐owned housing starts in March were at a seasonally adjusted annual rate of 1,321,000. This is 14.7 percent (±9.9 percent) below the revised February estimate of 1,549,000 and is 4.3 percent (±9.4 percent)* below the March 2023 rate of 1,380,000. Single‐family housing starts in March were at a rate of 1,022,000; this is 12.4 percent (±12.5 percent)* below the revised February figure of 1,167,000. The March rate for units in buildings with five units or more was 290,000.

Housing Completions
Privately‐owned housing completions in March were at a seasonally adjusted annual rate of 1,469,000. This is 13.5 percent (±11.0 percent) below the revised February estimate of 1,698,000 and is 3.9 percent (±13.5 percent)* below the March 2023 rate of 1,528,000. Single‐family housing completions in March were at a rate of 947,000; this is 10.5 percent (±10.1 percent) below the revised February rate of 1,058,000. The March rate for units in buildings with five units or more was 502,000.

Whoa, are the high interest rates leading to further pullback in home construction?

I don't think so, because some of this seems to be a natural adjustment to new housing construction that was “pulled forward” in a warm February. Housing starts is a very good exampkle of this, with the 14.7% decline being a snapback from a 12.7% increase in February.

One red flag that I do notice is that we have the smallest number of total housing units under construction in over a year, despite having the most single-family units being built since last Spring. That's because housing projects of 5 or more units have had a sizable drop since last Summer.

There was a similar theme from the National Association of Realtors, as they reported that existing home sales fell in March.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – receded 4.3% from February to a seasonally adjusted annual rate of 4.19 million in March. Year-over-year, sales waned 3.7% (down from 4.35 million in March 2023).

"Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves," said NAR Chief Economist Lawrence Yun. "There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market."

Total housing inventory registered at the end of March was 1.11 million units, up 4.7% from February and 14.4% from one year ago (970,000). Unsold inventory sits at a 3.2-month supply at the current sales pace, up from 2.9 months in February and 2.7 months in March 2023.

"More inventory is always welcomed in the current environment," Yun added. "Frankly, it's a great time to list with ongoing multiple offers on mid-priced properties and, overall, home prices continuing to rise."

But if you take away February's numbers, the 4.19 million sales rate was also the fastest since May, and the 3.80 million in single-family sales was the fastest since March 2023. Looking over the last year, it appears sales got pulled ahead into February, and that the overall trend is moderate growth for the last 6 months after a decline in sales in the middle half of 2023.

It’s also intriguing that housing sales continue despite mortgage rates bouncing higher in the early part of 2024, as the prospects of a softer economy and a quicker start to Fed rate cuts began to fade. Let's see if that one continues for April.

I do find the trends of higher inventory and more completions and construction on single-family homes to be a good sign, as housing affordability is one of the few real headwinds in the current economy, and that's been compounded by the higher interest rates that exist in early 2024. But it's still nowhere near as good for potential buyers as it was 3 years ago, both in cost and interest rates, and while it's nice for millions of us to have large levels of housing wealth "banked", there still aren't a lot of places to turn to if we wanted to cash in those gains.