Kiplinger Housing Outlook: Single-Family Starts Rise for the Second Consecutive Month

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Home-price gains continued to slow at the start of the year. The S&P CoreLogic Case-Shiller National Home Price Index rose just 2% in February from a year ago, down from a 3.7% rise in the previous month. Mortgage rates have started to come down and are likely to end the year around 5.5%. House prices probably have a bit further to fall, particularly as households’ purchasing power has yet to feel the impact of tighter credit conditions resulting from recent bank failures.

Residential construction is finding its footing. Total housing starts fell 0.8% to 1.42 million annualized units in March. The monthly decline in residential construction was due to a 5.9% drop in multifamily starts, which tend to be very volatile. By contrast, single-family starts posted the third improvement in four months, climbing 2.7%. The gain was fairly widespread, with every region except the West seeing a month-over-month improvement. And despite its monthly decline, multifamily construction continues to run at a robust pace. During March, the count of multifamily units under construction ticked up to 958,000 — the highest level since the fall of 1973. Building permits — a bellwether for future construction — fell 8.8%, with single-family permits increasing 4.1% during the month and multifamily permits plummeting 22.1%. Further declines in multifamily permits are likely as a fall in property values deters investment in the sector.

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New-home sales continued their modest recovery in March. They rose 9.6% to a seasonally adjusted annual rate of 683,000 units. While sales are still below pre-pandemic levels, they have staged a recovery in recent months. The recent strength in new-home sales reflects the generous incentives and price cuts offered by builders across the nation. The Northeast and the West drove the increase in sales in March. The inventory of new homes fell but remains elevated, at seven months of supply at the current sales pace.

Existing-home sales edged lower in March. Sales of previously owned homes fell 2.4% to 4.4 million annualized units in March, rounding off the weakest start to the year in over a decade. The decline in home sales was driven by a rebound in mortgage rates from 6.2% at the start of February to 6.8% by the end. That led to a reduction in mortgage applications for home purchases. Elevated mortgage rates, tighter lending standards and the growing risk of a recession in the wake of recent financial stability concerns will weigh heavily on home sales in the months ahead.

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