Good news. Provisionally.
New construction activity picked up in the US last month despite woefully subdued builder sentiment.
Housing starts rose more than 11% MoM in February, government data released on Tuesday showed. That was eight times the expected percentage gain. The annual pace, 1.501 million, topped every estimate.
Single family starts rose nearly 11.5% to a 1.11 million pace, the quickest in a year.
As the figure shows, the encouraging read on single-family construction came amid a downturn in builder moods which, according to Monday’s update from the NAHB, persisted into this month.
Obviously, some of February’s rebound in construction was a “snapback” effect from January, when weather prevented hammers from flying in some locales. Single-family construction in the south jumped nearly 20% MoM.
Month-to-month volatility aside, tariffs are just one more headache for homebuilders, who’re already grappling with high labor costs and reluctant buyers who, as much as they want a home, simply can’t make the math work. Offering incentives means margin erosion, but what choice do they have? The builders, I mean.
As the figure shows, there’s a veritable glut of new homes for sale. Sitting on those isn’t free. There’s a carrying cost.
Remember: Builders initially benefited from an acute dearth of resale inventory which left new construction as the only game in town. But at this juncture, that’s small comfort. Builders need to clear some of their inventory, and as I’ve put it over and over again since last autumn, anyone who could afford to buy with prices at records and rates near 7% already has. That leaves a cost-constrained buyer pool.
Note that although starts rose smartly in February, permits didn’t. In fact, they fell both overall and specifically for single-family homes.
According to Redfin’s latest data, house prices in the Midwest are now rising rapidly amid shortages. In Milwaukee, for example, prices rose 20% YoY last month, Lily Katz noted. Nationwide, prices rose 3% in February, pending home sales dropped the most in nearly two years and days on market, at 54, were the most since 2020.
