New home construction rebounds after storm-ridden month

US housing starts rose in February by more than forecast after a weather-related plunge, led by a pickup in single-family home construction underpinned by builder incentives.

New residential construction increased 11.2% to an annualized rate of 1.5 million in February, according to government data released Tuesday. The pace exceeded all forecasts in a Bloomberg survey of economists.

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New construction of single-family homes rose 11.4% to an annualized 1.11 million rate, the fastest in a year. Multifamily housing starts climbed 10.7% after plunging nearly twice that much a month earlier. 

The figures point to a rebound from a weak January when inclement winter storms blanketed large parts of the South and Northeast. Building activity snapped back in those regions last month, while starts were more moderate in the West and dropped in the Midwest.

Builders are still contending with an elevated number of unsold homes while high borrowing costs keep many prospective buyers sidelined. That indicates homebuilding will remain a soft spot for the economy without a further decline in mortgage rates and more affordable homes. 

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The report also showed building permits, an indicator of future construction, decreased 1.2% to an annualized pace of 1.46 million. Single-family home authorizations decreased 0.2%.

With the supply of new homes at the highest level since 2007, builders are trying to lure buyers with incentives, especially mortgage rate buydowns, where upfront payments are made on customers’ behalf to lower their mortgage rates.

Builder Sentiment

Meanwhile, the potential for higher tariffs on building materials such as lumber help explain why homebuilder sentiment declined this month to the lowest level since August.

Builders have enjoyed a bit of a tailwind over the last couple years because of a dearth of previously owned homes on the market. However, that “dynamic is fading” as the resale inventory has risen and mortgage rates above 6% sap demand, Bloomberg Intelligence analyst Drew Reading said in a note last week. 

The government’s report also showed the number of homes under construction, which have been falling consistently over the past year, were little changed near the lowest level since 2021. The number of homes completed last month fell 4% to a 1.59 million rate. 

The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 4.5% decline to a 26.9% gain.