WASHINGTON—U.S. housing starts increased in March but single-family home construction contracted, which is likely to mean ongoing inventory shortages and rapid price increases for buyers in the coming months, according to a new analysis.
The Commerce Department said total housing starts were up 1.9% during March over February to a seasonally adjusted annual rate of 1.319 million.
The increase was driven by a ramp up in construction of multifamily housing. Starts for buildings with five units or more jumped 16.1% from a month earlier, even as starts for single-family homes declined 3.7%, according to the department.
Analysts are reminding that housing-starts data are volatile from month to month and can be subject to large revisions. Multifamily activity is subject to especially large swings. March’s 1.9% rise in starts came with a margin of error of 12.4 percentage points, noted the Wall Street Journal.
Residential building permits, which signal how much construction is in the pipeline and tend to be more reliable month-to-month, increased 2.5% to an annual pace of 1.354 million last month. Single-family permits were down 5.5% compared with February, according to the Commerce Department data.
The Wall Street Journal reported that after a five-year boom in apartment construction, builders have been pulling back on new projects in the past year due to an excess of supply in many major urban markets. Economists expect new multifamily starts to be essentially flat this year compared with last year, while they are expecting a near three-decade high in the number of units completed as projects work their way through the pipeline.
“If the acceleration in multifamily starts continues it could signal that developers are shifting back to building rental properties as single-family demand faces headwinds,” the Journal said. “Rising interest rates and a tax code that is less favorable to homeownership have emerged in recent months as possible challenges.”
Single-family starts are down nearly 5% so far this year in the northeast, the region of the country likely to be the most impacted by tax changes that kicked in this year. Single-family construction remains at about half of what it was at the peak of the last housing market in 2006 and 30% below normal levels, which is helping to drive up prices.