US home building jumped higher in February, turning around after five consecutive months of falling.
Housing starts, a measure of new home construction, rose by 9.8% in February from January. But that’s still down 18.4% from a year ago, according to data released Thursday by the Census Bureau. Starts in January rose to a seasonally adjusted annual rate of 1.450 million, up from the revised January estimate of 1.321 million.
Housing starts had big drops in May and July last year, when spiking mortgage rates pushed many prospective home buyers to the sidelines. Starts bounced back slightly in August, but have been falling since then.
Single‐family housing starts in February were up 1.1% from the revised January figure, at a seasonally adjusted annual rate of 830,000.
As mortgage rates trended lower from November through January, builders have begun to feel more optimistic that conditions may improve in 2023. But recent strong economic data and uncertainty in the banking sector mean that inflation concerns remain, along with volatile mortgage rates.
Building permits, which track the number of new housing units granted permits, jumped up in February for the second month in a row, rising 13.8% from the revised January rate, and were down 17.9% from a year ago. In February building permits were at a seasonally adjusted annual rate of 1.524 million.
“Moving into the spring home selling season, builders showed signs of optimism in anticipation of more buyer demand,” said Kelly Mangold of RCLCO Real Estate Consulting. “However, interest rates and development costs remain high, while prices are softening — which is impacting the potential upside on home sales.”
And mortgage rates remain volatile for buyers. Rates climbed half a percentage point throughout February, but are now cooling again as uncertainty in the banking industry has sent investors to the relative safety of bonds.
Historically low inventory of existing homes — many owned by homeowners reluctant to sell and part with an ultra-low mortgage rate — is pushing many buyers toward new construction housing.
“The number of existing homes on the market has reached record low levels which is giving new homes less competition — and they are often one of the only options for motivated buyers,” Mangold said.
According to a recent analysis of the housing market, the United States was short about 6.5 million homes between 2012 and 2022. New construction of all kinds is critical to closing that gap.
“We are currently in a period of economic uncertainty, and it is possible that we could see improvements as the year progresses, or that starts could experience a continued decline if we enter a true recession,” said Mangold.