US construction of new homes dropped just shy of a two-year low in March, indicating ongoing difficulty in the housing market despite lower mortgage rates and higher wages alleviating some recent headwinds. Annually, starts dipped 14.2%.
- US home starts dropped 0.3% to 1.139 million from a downwardly revised 1.142 million the month prior.
- March home starts dipped to the slowest pace since May 2017 according to Friday’s government report.
- Permits, which indicate future construction, dropped to 1.7% or 1.27 million, below expectations.
Despite appearing more energetic in recent months as wage growth caught up with rising home prices and interest rates took a dive, the housing market is still faced by many problems. The cost of land, labor, and materials are all negatively impacting affordability. The shortage of skilled workers has led to higher labor costs, and lots are also in demand.
The Federal Reserve has indicated that there will be no interest rate hikes throughout 2019, and this should allow for some stability in housing which suffered under the four rate hikes introduced last year which made it difficult for many potential buyers to enter the market.
Existing home sales are predicted to recover from the decline seen in February, the biggest since 2015, and new homes are expected to slow from their yearly high. Existing home sales account for 90% of the housing market.
Why are housing starts/permits stuck here?
Faith in demographic models were misplaced this decade compared to the need of more customers. pic.twitter.com/3wmZqcIJ3B
— Logan Mohtashami (@LoganMohtashami) April 19, 2019
Only the West saw positive activity with a 31.4% rise in housing starts. All other regions underwent decline, led by the Midwest with a 17.6% drop. Poor weather such as heavy snows in the Northeast and particularly bad flooding along the Mississippi and Missouri rivers may have also made it difficult to break ground on new homes in those areas.
Single-family starts dropped 0.4%, and permits for that category dropped 1.1%. The volatile multifamily homes category had a flat reading of 354,000 with a 2.7% dip in permits. 197,000 homes were authorized but not yet a started in March, the same level as the rest of Q1, indicating healthy supply moving forward.
Gold is up following the news of further weakness in the housing market, with a 0.30% gain on the day. Gold last traded at the session high of $1,275.67/oz following a low of $1,273.78/oz. With markets closed on Good Friday, the data may not have a significant impact come Monday’s re-opening.