Single-Family Permits Weaken in March

Single-family starts permits declined in March, as higher interest rates weighed on housing affordability and produced a fourth straight decline for the NAHB/Wells Fargo HMI. Additionally, the cost and availability of materials, lumber, labor and lots remain key supply-side headwinds. Nonetheless, the resale market lacks inventory supporting ongoing demand for new construction. Single-family permits decreased 4.8% to a 1.15 million unit rate in March.

Overall housing starts were effectively flat in March at 1.79 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The March reading of 1.79 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months.

Within this overall number, single-family starts decreased 1.7% to a 1.2 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, continued to gain ground, rising 4.6% to a strong 593,000 annual rate.

Due to supply-chain effects, there are 149,000 single-family units authorized but not started construction—up 14.6% from a year ago.

In April single-family builder confidence decreased two points to a level of 77, according to the NAHB/Wells Fargo Housing Market Index (HMI). After peaking at a level of 90 in November 2020, builders have reported ongoing concerns over elevated lumber, OSB and other construction costs, as well as delays in obtaining building materials. The sharp rise in mortgage interest rates at the start of 2022 has also had an impact on sales expectations. Consequently, the market has likely reached an inflection point whereby a new volume trend based on current affordability conditions must be found. This will mean a shift lower for single-family demand and a step up in demand for apartment construction.

On a regional and on a year-to-basis, combined single-family and multifamily starts are 17.3% higher in the Northeast, 6.6% higher in the Midwest, 11.2% higher in the South and 7.5% higher in the West.

As an indicator of the economic impact of housing and as a result of accelerating permits and starts in recent quarters, there are now 811,000 single-family homes under construction. This is 27% higher than a year ago. There are currently 811,000 apartments under construction, up 21% from a year ago. Total housing units now under construction (single-family and multifamily combined) is 24% higher than a year ago. The number of units under construction is rising on both the total volume of construction, as well as longer construction times.