New Housing Starts Plunge in March, Remodeling Sentiment Remains Positive – CE Pro

New U.S. housing starts plummeted in March, dropping 14.7% below the revised February estimate of 1.55 million to 1.32 million and 4.3% below the March 2023 rate of 1.38 million. The shift marks a drastic downturn compared to expert estimates heading out of February, which itself saw new construction numbers hit two-year highs, spiking 10.7% from January.

Analysts had originally predicted the rate for March to fall around 1.48 million.

The drop in March 2024 is being compared to the decline seen in April 2020 when new housing starts dropped by a staggering 27%. Outside of the pandemic, this is the most housing starts have dropped since February 2015.

The northeast took the biggest hit, with new single family housing starts dropping a whopping 40.9% in March. Across the board, however, most regions were down with the Midwest 14.5% lower, the south 12.9% lower, and the west being the only region up at a measly 1.3% from February.

Multi-family (MDU) construction took a similar hit, with overall starts dropping 20.8% from Februarys numbers.

New housing permits also declined heading into March at a rate of 1.46 million, 4.3% below the revised February rate of 1.52 million. They did, however, remain slightly above the March 2023 rate1.5% to be exact.

Builder sentiment overall remains unchanged, however, as many have a small level of optimism despite predictions that the rate of new homes being constructed expected to continue to drop.

According to NAHB Chief Economist Robert Dietz, Aprils flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed.

Despite experiencing a slight dip at the beginning of the year to below 7% on optimism of a March rate cut, mortgage rates have steadily continued to climb and are now moving back towards that 7% mark on news of persistent inflation in a hotter than expected market that may now push rate cuts back towards July at the earliest.

Currently, YoY inflation sits at 3.3%, still above the Feds target of 2%, which has led to a more conservative stance in introducing rate drops.

To combat the ongoing affordability issues, homebuilders have continued to offer price cuts and other incentives to first time home buyers to increase sales while also diversifying into smaller, more affordably built homes to account for the high price of materials.

The number of homebuilders cutting prices has dropped, however, to 22%, down from 24% last month. Sales incentives, likewise, have decreased from 60% down to 57% this month. The average price reduction of homes is remaining steady though at 6% for the tenth straight month.

Inventory, howeveror lack thereofcontinues to be the buoying force to homebuilder sentiment, as an overwhelming lack of existing homes has led to newly constructed housing being the primary source of home inventory for many homebuyers.

This lack of existing inventory has also led to similarly optimistic views on the remodeling market, with the NAHBs most recent Remodeling Market Index (RMI) giving a 66 reading (with 50 marking a neutral sentiment). The index runs from 0 to 100.

Demand for remodeling remains solid, especially among customers who dont need to finance their projects at current interest rates, said NAHB Remodelers Chair Mike Pressgrove, a remodeler from Topeka, Kan. Construction costs are still an issue in some places, just as they were toward the end of last year.

The Current Conditions Index also averaged 74, remaining unchanged from the previous quarter and indicating strong positive sentiment overall for the demand of remodeling projects across all price ranges which include $50,000; $20,000 $50,000; and below $20,000.

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New Housing Starts Plunge in March, Remodeling Sentiment Remains Positive - CE Pro