NEW-HOME CONSTRUCTION REBOUNDS WITH SPRING BUYING SEASON UNDERWAY

“Expectations of the Fed rate cuts and eventual decline in mortgage rates continue to fuel homebuyers’ confidence and expectations of stronger homebuyer demand,” noted Dr. Selma Hepp, chief economist at CoreLogic.

 March 19, 2024

New-home construction bounced back sharply in February due in part to slightly more favorable mortgage rates and a dearth of existing houses for sale.

Housing starts rose 10.7% in February to an annual rate of 1.52 million, beating estimates of a 1.5 million increase, according to data released March 19 by the Census Bureau and the Department of Housing and Urban Development. The numbers reflect that sentiment is improving among homebuilders. 

The increase represents the biggest gain in nine months, but is still below December’s level, while representing a boost above the revised January estimate of 1,374,000, and 5.9% above the February 2023 rate of 1,436,000. Single‐family housing starts in February were at a rate of 1,129,000; this is 11.6% above the revised January figure of 1,012,000. The February rate for units in buildings with five units or more was 377,000, the biggest gain in nine months. 

Permits, meanwhile, increased 1.9% to 1.52 million, above forecasts of 1.5 million. January starts and permits were revised upward to 1.37 million and 1.49 million, respectively.

“Housing starts will continue to pick up pace this year,” said Dr. Selma Hepp, chief economist at CoreLogic. “Expectations of the Fed rate cuts and eventual decline in mortgage rates continue to fuel homebuyers’ confidence and expectations of stronger homebuyer demand, particularly as the inventory of existing homes remains depressed, shifting the demand to newly constructed homes. In addition, persistent home price pressures add to a positive outlook for homebuilders, while homebuyers should not expect prices to come down anytime soon, except in the very few markets where demand is weak.”

Bright MLS Chief Economist Dr. Lisa Sturtevant noted that gains are heavily concentrated in single-family construction.

“Homebuilders continue to be bullish about the spring market as homeowners are still reluctant to list their homes for sale and new homes account for an outsized share of the active inventory,” she said. “Single-family starts were 35.2% higher than they were last year at this time. By contrast, starts of units in new multifamily buildings (i.e., apartments) fell by 35.9%.

“Prospective homebuyers who are looking at new construction are still finding some builders offering concessions, upgrades or favorable financing terms,” Sturtevant added. “But fewer builders are offering price cuts, according to the most recent National Association of Home Builders survey. It is possible that we could see more wiggle room on pricing in the coming months, as the inventory of existing homes begins to expand.”

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