New construction increases in February

The increase comes as builders report they are more optimistic about the market.

Builders showed renewed optimism in February, pulled additional permits and started building more housing units, the Census Bureau and the Department of Housing and Urban Development said today (Thursday).

The number of permits rose 13.8% to an annual rate of 1.5 million, while January's number was slightly revised upwards. Construction starts rose 9.8% to an annualized 1.45 million from the previous month's revised rate of 1.32 million.

However, the level of activity remains about 18% below a year ago. Much of the profit came in multi-family construction. The increases were strongest in the south and west.

"The increase in new starts this month reflects recovering homebuyer demand and improving builder confidence," said Lisa Sturtevant, Bright MLS's chief economist. "However, the recent troubles in the banking industry may cancel the momentum that has accumulated in the new housing sector."

Builder confidence rose two points in March, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Wednesday. This was the third consecutive monthly increase in contractor sentiment.

"Even as builders continue to face stubbornly high construction costs and material supply chain disruptions, they continue to report pent-up demand as buyers wait for interest rates to drop and turn more to the new home market due to a shortage of existing properties. inventory,” said NAHB Chair Alicia Huey, a Birmingham, Alabama-based custom home builder and developer. "But in light of the recent fears of instability in the banking system and volatility in interest rates, the builders are very uncertain about the forecast for the near and medium term."

The monthly survey found that builders are relying on incentives to sell homes, with 31% reporting that they lowered prices in March, the same as February but lower than reported at the end of last year.

"Conditions are still considered "poor" overall, but the improvement signals that builders are feeling cautiously optimistic," said Odette Koshi, deputy chief economist at First American Insurance Company, before the release of the construction data.

"One of the drivers behind higher sentiment from builders is the lack of existing home stock available for sale," Koshi added. "The lack of existing home inventory means that more and more buyers can turn to the new home market. And while three months of higher homebuilder sentiment may indicate a turning point for single-family homebuilding, builders continue to face headwinds in the form of higher construction costs and a limited affordable housing market."

Kelly Mangold of RCLCO Real Estate Consulting said, "On a positive note, the number of existing homes on the market has hit record lows, giving new homes less competition - and often being one of the only options for motivated buyers."

"We are currently in a period of economic uncertainty, and we may see improvements as the year progresses, or starts may experience a sustained decline if we enter a true recession," she said.

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