Single-Family Permits Up Over 7% From January

Publishing data covering the month of February 2023, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development has released their joint report on new residential construction permits, starts, and completions.

According to the report, privately-owned housing units authorized by building permits came in at a rate of 1.524 million units—a number which is up 13.8% over January against a rate of 1.339 million and is a further 17.9% below the February 2022 rate of 1.875 million.

On the topic of privately-owned housing starts in February came in at a seasonally adjusted annual rate of 1.45 million units. This number is 9.8% above the January estimate of 1.321 million starts but is 18.4% below the February 2022 rate of 1.777 million units.

Single-family housing starts showed a small gain of 1.1% for a total of 830,000 units. Multi-family units posted 608,000 starts.

Completed housing came in at 1.577 million units, a seasonally adjusted number which was up 12.2% from January and 12.9% above numbers recorded last year.

After the public release of the report, First American Deputy Chief Economist Odeta Kushi commented: “U.S. housing starts come in above consensus expectations at an annual pace of 1.45 million, which is 9.8% above the upward revised January estimate of 1.321 million and 18.4% below the February 2022 rate. Single-family housing starts in February were up 1.1% above the revised January figure of 821,000.”

“Single-family housing permits, a leading indicator of future starts, also increased 7.6% compared with the previous month. The uptick in single-family housing permits and starts aligns with the recent increase in homebuilder sentiment.”

“Sentiment increased for the third consecutive month in March, with two of the three components of the index—current single-family home sales and prospective buyer traffic – rising. Conditions are still considered ‘poor’ overall, but the improvement signals cautious optimism.”

“One of the drivers behind higher builder sentiment is the lack of existing-home inventory available for sale. The shortage of existing-home inventory means more and more buyers could turn to the new-home market. While three months of improving home builder sentiment may indicate a turning point for single-family homebuilding, builders continue to face headwinds in the form of higher construction costs and an affordability-constrained housing market.”

“As the inventory of new, completed homes rises, it will provide some much-needed relief to a supply-starved market and put downward pressure on new-home prices.”

Bright MLS Chief Economist Dr. Lisa Sturtevant also commented on the report:

“Housing starts rose in February after falling to a two-and-a-half year low in January. Privately‐owned housing starts were at a seasonally adjusted annual rate of 1,450,000, which is up 9.8% from a month earlier. The uptick in new starts this month reflects rebounding homebuyer demand and improved builder confidence. However, recent troubles in the banking industry could quash the momentum that has been building up in the new housing sector.”

“Housing starts were up in all regions with the exception of the Northeast, with new construction activity surging in the Midwest region where starts were up by more than 70% in February. Rebounding demand that had been fueled by falling mortgage rates, coupled with relatively affordable local markets, supported the robust activity in the Midwest.”

“The pace of new construction had been picking up over the past two years. In 2022, a total of 1.55 million new housing units were started, which is a little higher than the average annual new starts over the past five decades. However, the amount of new housing being built is still far below what is needed to meet demand and help moderate high prices. Freddie Mac has estimated that the nation has a 3.8 million housing unit shortfall.”

“If interest rates come down, homebuilders could find it easier to finance new projects. But there are other challenges. Banks, and particularly regional banks, have been under pressure after the recent collapse of Silicon Valley Bank and Signature Bank. Homebuilders often depend on financing from these regional banks. Instability or other disruptions in the banking industry could reduce building activity this spring just as homebuilders want to be ramping up.”

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