The US housing market stabilizes as single-family home construction allows for an increase

WASHINGTON, April 18 (Reuters) – U.S. single-family home construction rose for a second month in a row in March, while permits for future construction increased, providing some glimmers of hope for the depressed housing market ahead of the busy spring selling season.

The improvement in the single-family home segment, reported by the Commerce Department on Tuesday, likely reflected buyers taking advantage of a downturn in mortgage rates. A survey on Monday showed that falling mortgage interest rates and tight access to previously owned houses supported the new home market.

“Mortgage rates have pulled back from their October/November peaks, helping to provide a boost to demand and sales activity,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio. “However, the environment remains challenging with high input and labor costs for builders and expensive financing options for buyers.”

Single-family home starts, which account for the bulk of housing construction, rose 2.7% to a seasonally adjusted annual rate of 861,000 units last month. Data for February was revised higher to show that single-family home construction rose at a rate of 838,000 units instead of the previously reported pace of 830,000 units.

Detached house construction increased by 4.4% in the Northeast and rose by 23.6% in the Midwest. It advanced 4.8% in the densely populated Southern Norway, but plunged 16.0% in the West. Detached house starts fell 27.7% year-on-year in March.

The Federal Reserve’s aggressive rate hikes have pushed the housing market into recession, with home investment declining for seven consecutive quarters, the longest such streak since the collapse of the housing bubble triggered by the Great Recession of 2007-2009.

However, there are signs that the housing market is stabilizing at very low levels. The National Association of Home Builders/Wells Fargo Housing Market Index climbed to a seven-month high in April.

Mortgage rates have fallen from last year’s peaks, with the average rate on the popular 30-year fixed mortgage falling from a peak of 7.08% in early November to 6.27% last week, according to data from mortgage finance agency Freddie Mac.

Those rates have fallen in line with US Treasury yields on hopes that the Fed will not continue to raise borrowing costs beyond next month amid signs that the economy is slowing.

But the recent financial turmoil following the collapse of two regional banks could prompt banks and mortgage lenders to tighten underwriting standards.

– Tighter credit conditions will make it more difficult for homebuilders to finance new projects, which will weigh on future construction activity, says Doug Duncan, chief economist at Fannie Mae.

Stocks on Wall Street traded lower. The dollar fell against a basket of currencies. Prices of US government bonds rose.

COMPLETIONS INCREASING

Starts for housing projects with five units or more decreased 6.7% to a rate of 542,000 units. Construction of multi-family housing is still underpinned by the demand for rental housing. But economists see limited room for further gains, noting an increase in empty apartments. The stock of multi-family homes under construction is at a record high.

“There’s a hint here that maybe the baton is passing from rental construction to buy-to-let construction,” said Conrad DeQuadros, senior financial adviser at Brean Capital in New York. “None of this is to suggest a strong revival in housing activity, but it does support the view that the worst of the downturn may be behind us for now.”

With the decline in multifamily construction offsetting the increase in single-family projects, total housing starts fell 0.8% to a rate of 1.420 million units last month.

Economists polled by Reuters had predicted starts would fall to a rate of 1.40 million in March.

Single-family home building permits rose 4.1% to a rate of 818,000 units in March, a five-month high. They rose in the Northeast, South and West, but were unchanged in the Midwest.

Permits for residential projects with five units or more fell 24.3% to a rate of 543,000 units. Overall, building permits fell 8.8% to a rate of 1.413 million units.

The number of houses approved for construction yet to start fell 3.0% to 291,000 units. The single-family home construction backlog fell 2.3% to 130,000 units, the lowest level since February 2021, while the completion rate for this segment rose 2.4% to a rate of 1.050 million units.

The inventory of single-family homes under construction fell 2.3% to a rate of 716,000 units, the lowest level since August 2021.

“The housing sector appears to have some new finished inventory in the coming months,” said Colin Johanson, economist at Barclays in New York.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

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