- SUMMARY
New housing construction in March experienced a significant decline, with new home starts falling 14.7% and building permits dropping over 4% compared to the previous month.
This unexpected downturn has raised concerns about the strength of the housing recovery.
Brad Case, Chief Economist at Middleberg Community, expressed surprise at the data, as he had anticipated an increase in new homes started.
However, he believes that the construction activity seen in recent years, fueled by a surge in demand and supply, is now tapering off.
The spring buying season may face challenges due to the slow pace of construction, particularly in the single-family home market.
Buyers remain hesitant to move due to higher mortgage rates, which prevents them from accessing new homes.
Meanwhile, the rental market presents a different picture.
The demand for rental housing has outpaced expectations, leading to a slowdown in rent growth.
This is positive news for rental providers but does not align with the Consumer Price Index (CPI) rent component, which has decreased at a slower-than-anticipated pace.
Despite this, the Federal Reserve is unlikely to base its interest rate decisions on the CPI rent component alone.
They will consider the actual rental market conditions, which indicate stronger demand than previously thought.
Case’s economic model still shows an elevated probability of recession at 15%, although this is lower than earlier estimates.
He emphasizes the need to observe progressions in three-month moving averages to assess economic trends, as single-month data can be misleading.
The mixed signals from recent economic indicators suggest that the economy is facing a period of uncertainty, with both positive and negative signals emerging.
- Key Takeaways
Decline in New Housing Construction
New home starts fell 14.7% and building permits dropped over 4% in March, signaling a slowdown in the construction industry and raising concerns about the health of the housing recovery.
Impact on Spring Buying Season
The slow pace of construction and higher mortgage rates could create challenges for homebuyers, particularly in the single-family home market, during the spring buying season.
Strength of Rental Market
The demand for rental housing remains robust, leading to a slowdown in rent growth despite the CPI rent component decreasing at a slower pace than anticipated.