US housing construction rose to a 15-year high in March, but high timber prices amid supply constraints could limit builders’ ability to increase production and alleviate shortages of housing that threatens to curb the momentum of the real estate market.
The sharp rise reported by the Commerce Department on Friday added to solid retail sales in March, suggesting the economy was roaring after a brief weather-related setback in February. Rising vaccinations against COVID-19, warmer climate and massive fiscal stimulus are driving the economy, with growth this year being the strongest in nearly four decades.
But caution is beginning to take hold among consumers as the course of the pandemic remains uncertain and inflation shows signs of warming. Other data on Friday showed that consumer sentiment rose moderately in early April.
“We’re in a unique situation with the economy starting to rebound from the worst of the pandemic,” said Robert Frick, a corporate economist at the Navy Federal Credit Union in Vienna, Virginia. “Uncertainties continue, with many companies yet to reopen, unemployment still high and COVID-19 levels lower but persistent.”
Housing initiatives rose 19.4% to a seasonally adjusted annual rate of 1,739 million units last month, the highest level since June 2006. Reuters economists surveyed predicted would increase at a rate of 1.613 million units in March.
Initiatives soared 37.0% year-on-year in March. Housing construction collapsed in February as large parts of the country suffered from a cold climate that included, including winter storms in Texas and other densely populated southern parts of the region.
Innovative activity increased in the northeast, midwest and south, but fell in the west. Permits for future home construction rose 2.7% to a rate of 1.766 billion units last month, recovering only a fraction of 8.8% in February. They jumped 30.2% compared to March 2020.
“While demand for housing is expected to remain strong, we expect it to decline slightly as the year progresses,” said Doug Duncan, chief economist at Fannie Mae in Washington. “Home builders continue to face supply constraints, including rising prices for wood and other materials.”
Stocks on Wall Street were mostly higher, with the S&P 500 (.SPX) and the Dow Jones industrial average (.DJI) hitting record highs. The dollar (.DXY) fell against a basket of currencies. US Treasury prices were lower.
RECORD WOOD PRICES
The housing market is fueled by the demand for larger, more expensive housing, as millions of Americans continue to work from home and the remote school remains in place when the pandemic reaches its second year. . The supply of housing has been insufficient, with an inventory of previously owned houses at record lows. This is the basis of housing construction.
A survey by the National Association of Home Builders on Thursday showed confidence among single-family home builders that rose in April amid heavy buyer traffic. Builders appealed for solutions “to increase the supply of building materials as the economy collapses in 2021.”
Earlier this month, consumers took inflation concerns into account. A separate report from the University of Michigan showed Friday that its preliminary consumer sentiment index rose to 86.5, from the final reading of 84.9 in March.
Economists had predicted that the index would rise to 89.6.
One-year inflation expectations from the survey jumped to 3.7%, the highest level in nearly a decade, from 3.1% in March. Its five-year inflation outlook did not change, to 2.7%.
This month’s reports showed large increases in both consumer and producer prices in March, as strong domestic demand pushed supply constraints. Federal Reserve Chairman Jerome Powell and many economists believe inflation is more transient, and supply chains are expected to adapt and be more efficient.
Supply interruptions due to coronavirus-related restrictions increase commodity prices. Softwood lumber, which is used for house frames and trusses, rose a record 83.4% year-on-year in March, according to the latest producer price data released last week. Prices for other building materials such as plywood have also risen sharply.
Port congestion on the west coast, as well as the winter weather in Canada that has closed factories and restricted truck transportation, also contributed to the shortage that pushed up prices for building materials, according to a survey by the ‘Supply Management Institute published earlier this month.
Construction of single-family homes, the largest share of the real estate market, rose 15.3% to a rate of 1,238 million units in March. Still, starts remained below last December’s high, probably limited by more expensive building materials.
Single-family building permits rose 4.6% to 1.99 billion units.
“The failure of the single-family family is beginning to fully recover to last winter’s peak, although strict inventories in most metropolitan areas support the idea that builders are holding back said Chris Low, chief economist at FHN Financial in New York.
Boots in the multifamily volatile segment shot up 30.8% at a rate of 501,000 units. Construction licenses for multi-family homes fell 1.2%, to a rate of 567,000 units.
Home completion accelerated 16.6% to a rate of 1.58 billion units last month, the highest since March 2007. Single-family home completion rose 5.3% up to a rate of 1.099 billion, the highest since November 2007.
Real estate agents estimate that single-family home start-up and completion rates should be between 1.5 and 1.6 million units a month to close the inventory gap.
The housing stock under construction increased by 0.8% to a rate of 1.306 million units, the highest since September 2006.
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