US home construction soared to nearly 15 years high in March, but rising timber prices amid supply constraints could constrain builders’ ability to boost production and reduce housing shortages that threatens to slow housing market momentum .
The sharp recovery reported by the Department of Commerce on Friday contributed to robust retail sales in March and suggests the economy roared after a brief weather-related setback in February. Increasing COVID-19 vaccinations, warmer weather and massive fiscal stimulus are driving the economy, with growth expected to be the strongest in nearly four decades this year.
But caution is beginning to creep up among consumers as the pandemic’s course remains uncertain and inflation shows signs of warming. Other data from Friday caused consumer confidence to rise moderately in early April.
“We are in a unique situation where the economy is starting to recover from the worst pandemic,” said Robert Frick, business economist at the Navy Federal Credit Union in Vienna, Virginia. “Uncertainties remain, with many businesses yet to reopen, unemployment still high and COVID-19 levels lower but persistently.”
Housing start-ups rose 19.4% last month to a seasonally adjusted annual rate of 1.739 million units, the highest level since June 2006. Economists polled by Reuters had predicted the number of startups to rise to 1.613 million units in March .
Starts were up 37.0% year on year in March. Housing construction collapsed in February as large areas of the country staggered from unusually cold weather, including winter storms in Texas and other parts of the densely populated South region.
Breakthrough activity increased in the Northeast, Midwest and South, but declined in the West. Permits for future home construction rose 2.7% last month to 1.766 million units, accounting for only a fraction of the 8.8% decline in February. They jumped 30.2% compared to March 2020.
“While housing demand is expected to remain strong, we expect it to decline somewhat as the year goes on,” said Doug Duncan, chief economist at Fannie Mae in Washington. “Home builders are still facing supply constraints, including rising prices of wood and other materials.”
Stocks on Wall Street tended to be higher, with the S&P 500 index (.SPX) and the Dow Jones Industrial Average (.DJI) hitting new record highs. The dollar (.DXY) slipped against a basket of currencies. US Treasury bond prices were lower.
RECORD LUMBER AWARDS
The housing market is fueled by the demand for larger and more expensive accommodations, with millions of Americans continuing to work from home and distance education continuing as the pandemic enters its second year. The housing supply was insufficient, with a stock of previously owned homes at an all-time low. This forms the basis for building houses.
A study by the National Association of Home Builders on Thursday found that confidence among single-family homes increased in April due to strong buyer traffic. Builders called for solutions “to increase the supply of building materials as the economy warms up in 2021”.
Consumers were concerned about inflation at the beginning of this month. A separate report from the University of Michigan on Friday showed that the preliminary consumer sentiment index rose to 86.5 from a final reading of 84.9 in March.
Economists had predicted the index would rise to 89.6.
The survey’s one-year inflation forecast jumped from 3.1% in March to 3.7%, the highest level in nearly a decade. The inflation outlook over five years was unchanged at 2.7%.
Reports from this month showed large increases in both consumer and producer prices in March as strong domestic demand weighed on supply constraints. Federal Reserve Chairman Jerome Powell and many economists view higher inflation as temporary, and supply chains are expected to adapt and become more efficient.
Supply disruptions due to coronavirus-related restrictions are pushing up commodity prices. Softwood, used for trusses and trusses of houses, rose a record 83.4% year-on-year in March, according to the latest producer price data released last week. The prices of other building materials such as plywood have also risen sharply.
Port congestion on the west coast and winter weather in Canada that has closed factories and restricted freight traffic also contributed to the shortages driving up building materials prices, according to a study by the Institute for Supply Management published early this month.
Single-family homes, the largest share of the housing market, rose 15.3% in March to 1.238 million homes. Still, starts remained below last December’s peak, probably limited by more expensive building materials.
Building permits for single-family homes were up 4.6% to 1,199 million units.
“The failure of single-family homes is beginning to fully recover to last winter’s peak levels, despite tight supplies in most metropolitan areas, supports idea-makers who are reluctant,” said Chris Low, chief economist at FHN Financial in New York.
The start for the volatile multifamily segment rose 30.8% to a pace of 501,000 units. Building permits for multi-family homes are down 1.2% to 567,000 units.
The number of completed homes rose 16.6% last month to 1,580 million units, the highest number since March 2007. The number of single-family home completions rose 5.3% to 1,099 million, the highest number since November 2007.
Realtors estimate that the start of single-family homes and completion rates will need to be between 1.5 million and 1.6 million units per month to close the inventory gap.
The stock of homes under construction increased 0.8% to 1.306 million units, the highest number since September 2006.
Our Standards: The Thomson Reuters Principles of Trust.