Single-Family Starts Remain Lackluster, but Expected to Begin Sustained Rebound Later This Year

Single-family production remained at an anemic pace in February as builders continue to wrestle with elevated mortgage rates, high construction costs and tightening credit conditions that threaten to be exacerbated by recent turmoil in the banking system.

Led by gains in apartment construction, overall housing starts in February increased 9.8% to a seasonally adjusted annual rate of 1.45 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The February reading of 1.45 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 increased 1.1% to an 830,000 seasonally adjusted annual rate. However, this remains 31.6% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 24% to an annualized 620,000 pace.

“Builders continue to grapple with increased market uncertainty due to ongoing building material supply bottlenecks, volatile mortgage rates and increased jitters in the banking sector,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “At the same time, builder sentiment has been edging higher in the early part of 2023 as a significant amount of housing demand exists on the sidelines and resale inventory is limited.”

“Despite persistent supply-side challenges, rising builder confidence is signaling a turning point for home building later in 2023,” said NAHB Chief Economist Robert Dietz. “Starts were up in February given a limited pullback for interest rates. 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.”

On a regional basis compared to the previous month, combined single-family and multifamily starts were 16.5% lower in the Northeast, 70.3% higher in the Midwest, 2.2% higher in the South and 16.8% higher in the West.

Overall permits increased 13.8% to a 1.52 million unit annualized rate in February. Single-family permits increased 7.6% to a 777,000 unit rate. Multifamily permits increased 21.1% to an annualized 747,000 pace.

Looking at regional permit data compared to the previous month, permits were 2.8% lower in the Northeast, 9.6% higher in the Midwest, 10.9% higher in the South and 30.0% higher in the West.