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Can Builders Keep up With Demand?

An annual rise in housing completions promises more new homes for buyers this spring season, according to the latest new residential construction data published by the Census Bureau [1] and the U.S. Department of Housing and Urban Development [2] (HUD) on Friday.

Housing completions in March stood at a seasonally adjusted annual rate of a little more than 1.3 million. While this is 1.9% below February's completions, they stood at 6.8% above the March 2018 rate of 1.2 million. Despite a an overall month-over-month decline, single-family home completions were 11.9% above February at 938,000.

“Homebuyers looking for more housing supply to choose from can take heart, as builders completed more homes compared with last year, inching closer to balancing inventory with demand, said Odeta Kushi, Deputy Chief Economist at First American [3]. Yet, more is needed to make up for the shortage over the last decade.”

A decline in housing starts and building permits however, could be a concern in the longer term. According to data, housing starts decreased 0.3% month-over-month to approximately 1.1 million and were 14.2% below the March 2018 rate of around 1.3 million. Single-family housing starts were also 0.4% below February's 788,000 units.

Despite the rebound in single-family housing completions, homebuilding activity remains at depressed levels historically–the current level would be consistent with housing troughs in previous housing cycles, said Tian Liu, Chief Economist at Genworth Mortgage Insurance [4].

Building permits also decreased 1.7% below February's 1.29 million and were 7.8% below 1.37 million units recorded during the same period last year. Single-family authorizations also saw a 1.1% month-over-month decline.

“The year-over-year decline in single-family residential housing starts is a concern given the increasing demand from millennial home buyers for this type of construction,” Kushi observed. However she said that despite this fall, homebuilders remained positive about the housing market.

“While permits and housing starts are both down compared with last year, this does not align with the expectations of homebuilders, who recently indicated positive sentiment for the spring homebuying season.”

According to Liu, housing starts are likely to be closely watched by federal policymakers too. Housing is an interest rate-sensitive sector and the rapid rebound in homebuilding activity will generate momentum in the rest of the economy and ease the concern about an economic slowdown, Liu said.