Housing market activity has been relatively subdued in recent years due to factors such as high mortgage rates, escalating home prices, and limited inventory. However, there are signs that the situation may be evolving, with more housing options becoming available for potential buyers.
Recent economic data indicates a shift in the housing market landscape. In February, housing starts surged by 10.7% month-over-month compared to the revised estimate for January, surpassing the median forecast of 8.2%. This increase, reported by the US Census Bureau and the Department of Housing and Urban Development, represents the largest gain in nine months and a significant turnaround from January's 12.3% decline.
Year-over-year comparisons show that housing starts were 5.9% higher than the same period last year. Privately owned housing starts reached 1.521 million units on a seasonally adjusted basis, with single-family housing starts rising by 11.6% to approach two-year highs. Building permits also saw a notable increase of 1.9% month-over-month, reaching 1.518 million, exceeding the expected 0.5% gain and marking the most substantial rise since August.
Analysts from Goldman Sachs noted that the strength of the February increase was primarily driven by the single-family starts component, which saw an 11.6% rise, while the more volatile multi-family starts component also experienced growth at 8.3%.
Additionally, housing completions in February totaled 1.729 million, marking a 19.7% increase from the revised January estimate and a 9.6% rise from the previous year. The NAHB homebuilder confidence index for March moved into positive territory for the first time since July, surpassing the neutral sentiment level of 50. The index's 'current sales conditions' gauge saw a notable increase from 52 to 56, reflecting a rise in home demand.
The anticipated loosening of the housing market and improved inventory could provide relief to individuals who have been impacted by the 'lock-in' effect during the pandemic, as existing homeowners have been reluctant to move to retain historically low mortgage rates.
Looking ahead, analysts at Capital Economics predict diverging paths for single and multi-family construction over the next two years. They anticipate that the lack of second-hand homes on the market will drive demand towards new builds, benefiting single-family starts. However, this strength may be offset by weaknesses in multi-family starts, resulting in only marginal growth in total housing starts by the end of 2025.
