U.S. housing starts slipped to their lowest level in nearly two years in March, continuing a slowdown fueled by labor shortages and rising materials prices.
The Commerce Department reported that housing starts fell 0.3% to a seasonally adjusted annual rate of 1.139 million units last month. It was the second straight monthly decline and the lowest level since May 2017.
The February data were also revised downward to a pace of 1.142 million units from the previously reported 1.162 million-unit rate. Economists polled by Reuters had forecast housing starts increasing to a pace of 1.230 million units in March.
Building permits fell 1.7% to a rate of 1.27 million, suggesting a sharp rebound in homebuilding is unlikely. Economists expected a 1.3 million rate on permits.
As Reuters reports, land and labor shortages, as well as expensive building materials, “are constraining builders’ ability to construct homes in the lower price segment of the market, which continues to experience a shortage of homes for sale. The housing market hit a soft patch last year, with investment in homebuilding contracting 0.3 percent, the weakest performance since 2010.”
Mortgage rates have declined since the U.S. Federal Reserve indicated it would not raise interest rates again this year — the 30-year fixed mortgage rate has dropped from a peak of about 4.94% in November to around 4.12% — but that does not appear to have boosted home construction.
“Waiting for construction activity to pick up after a sharp drop in mortgage rates is like waiting for Godot,” said Chris Rupkey, chief economist at MUFG. “It is hard to know what is ailing the home construction industry.”
Single-family home starts, a gauge of industry confidence in the economy and financial markets, were basically flat in March compared to February, at a 785,000 annual pace.
For the year to date, housing starts are down 9.7% compared to the same period last year.
“Homebuilding activity remains at depressed levels,” said Tian Liu, chief economist at Genworth Mortgage Insurance. “The current level would be consistent with housing troughs in previous housing cycles.”