U.S. housing starts and permits jump in March, robust building season looms

U.S. housing starts and permits jump in March, robust building season looms

*New housing starts jumped 19.3% from their weather-related 11.3% decline in February to a 1.74 million annual pace in March, and building permits rose 2.7% to a 1.77 million annual pace (Charts 1 and 2). All of the cyclical and fundamental factors driving housing are positive, and further increases are expected in the coming months.

*New starts on single unit houses rose 15.3% to a 1.24 million annual pace, while starts on multi-family units surged 30.8% to a 501k annual pace. Starts rose dramatically in the midwest following the big February storms and also rose in the northeast and south, but registered a decline in the west (Chart 3).

*Home completions (+16.6% yr/yr to 1.58 million annualized pace) and units under construction (+0.8% to 1.31 million) rose.

Current housing activity and the outlook remains unambiguously positive. Housing demand is boosted by the cyclical factors associated with the economic rebound—rising employment (lower unemployment) and rising disposable incomes, and mortgage rates are very low. Rapid increases in home prices—over 11% in the last year—have lifted expectations of future price increases, adding to demand. Demographic factors are positive, as the demand for housing among individuals aged 25-34 is rising, and the work-at-home and increased perceived mobility is also boosting demand for housing.

The inventory of homes for sale is very low, and homebuilders are ramping up construction in an attempt to meet demand. Costs of construction have risen significantly, as a doubling of lumber prices and higher costs of other building materials have risen. With demand strong and inventories low, contractors are passing their higher costs to homebuyers, who are readily paying up.

Chart 1. New housing starts

Chart 2. Housing permits

Chart 3. Housing starts by U.S. region

Mickey Levy, mickey.levy@berenberg-us.com

Member FINRA & SIPC
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