Housing Starts Rose by Almost 10% in February

U.S. housing starts rose by 9.8% in February from the previous month, led by multifamily projects as builders and investors grew more confident that the market is turning around, according to the Census Bureau.

Starts were above the January estimate, with 1.45 million new projects in February. Single-family housing starts were also up 1.1% over the month, but are still 31.6% lower than  they were a year ago. Multi-unit new builds accounted for the majority of the growth over the month, jumping 24.1% from January and 14.3% from February, 2022. Housing starts climbed in every region except the Northeast, where they fell for the second month in a row. 

Housing starts in February were down 18.4% from one year ago.

Building permits, a measure of future home construction, were up in February as well. Permits rose 13.8% to 1.524 million after nearing a two-and-a-half-year low in January. Permits are still down 17.9% year-over-year. 

“The pickup suggests that homebuilders are cautiously optimistic that the housing market rout may be bottoming soon,” Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets, said. 

The pickup, especially for single-family construction, may help close the gap for families searching for homes. Market inventory for existing homes is historically low, with homeowners hesitating to sell amid higher mortgage rates than they are currently paying.

Between 2012 and 2022 the U.S. was in need of about 6.5 million single-family homes, a recent analysis from Realtor.com found. The rate of household formation is rapidly outpacing the number of new-build single-family homes on the market, making it difficult for would-be homebuyers looking to purchase. The multifamily sector has stepped in to fill some of that gap, but potential for long-term housing investments is slim. 

“Over the last 10 years, the rate of construction just hasn’t kept up with the rate of household formations, which has created this pretty sizable gap,” said Hannah Jones, Realtor’s economic data analyst, earlier this month. “Even when we consider multifamily construction, that may offer rental opportunities to households. But it doesn't really help with this large gap between the number of households that are forming each year and the number of single family homes that are being built.”

Homebuilder sentiment on the rise

Building permits are picking up, signaling that homebuilders believe that the markets could see a shift soon. Still, uncertainty about inflation, supply chain issues, and the potential for fluctuating mortgage rates are damping growth. 

“Despite persistent supply-side challenges, rising builder confidence is signaling a turning point for home building later in 2023,” said National Association of Home Builders Chief Economist Robert Dietz.

“Starts were up in February given a limited pullback for interest rates,” he added. “We expect volatility in the months ahead as ongoing challenges related to construction material costs and availability continue to act as headwinds on the housing sector. However, interest rates are expected to stabilize and move lower in the coming months, and this should lead to a sustained rebound for single-family starts in the latter part of 2023.”