The Unexpected Pitfalls in Home Building

Home building in the U.S. slowed to the slowest pace in seven months after reaching a nine-year high, reflecting growing concerns in the construction sector and adding to inventory worries.

The U.S. Census Bureau and the HUD on Tuesday jointly released new residential construction statistics for March 2016, which showed privately-owned housing starts were at a seasonally adjusted annual rate of 1,089,000, down 8.8 percent from February's estimate of 1,194,000, but is 14.2 percent above the March 2015 rate of 954,000. According to the data, single-family housing starts in March were at a rate of 764,000, down 9.2 percent from 841,000 in February.

“Single-family starts are off from their strong showing in February but this slowdown represents a return to a long-run, gradual growth trend that is consistent with builder confidence levels, which are overall positive,” said National Association of Home Builders (NAHB) Chief Economist Robert Dietz. “While we are also seeing a monthly decline on the multifamily front, multifamily construction is expected to level off at a solid rate given the high level of rental housing demand.”

NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Illinois added, "Starts are up at a double-digit rate from a year ago and builders remain fairly optimistic that more consumers will return to the housing market in the months ahead."

Home building appeared to be on the right track in February  with a surge in single-family home construction, inducing starts, permits, and completions, signaling newfound confidence in the housing market and economy.

According to the data, February's housing starts rose 5.2 percent to an annual rate of 1,178,000, compared to January's estimate of 1,120,000. Year-over-year housing starts experienced major gains, rising 30.9 percent compared to the February 2015 rate of 900,000. Overall starts have not been this high since September 2015 when the figure was 1,207,000. On the singe-family side, housing starts were at a rate of 822,000 in February, up 7.2 percent from the revised January figure of 767,000. Single-family starts have not been this high since November 2007 when they were at 833,000.

Genworth Mortgage Insurance Chief Economist Tian Liu said in response to the March data, "This is a disappointing report. We still expect strong housing demand and low inventory in the market for previously owned homes to lift single-family housing starts, later in the year.”

According to the data, privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,086,000, down 7.7 percent from February's rate of 1,177,000, but is 4.6 percent above the March 2015 estimate of 1,038,000. Single-family authorizations in March were at a rate of 727,000; this is 1.2 percent below the revised February figure of 736,000.

Privately-owned housing completions were at a seasonally adjusted annual rate of 1,061,000 in March, 3.5 percent above the revised February estimate of 1,025,000 and is 31.6 percent above the March 2015 rate of 806,000, the report stated. On the other hand, single-family housing completions were at a rate of 734,000, 0.3 percent below the revised February rate of 736,000.