New home construction, including single-family and multi-family homes, fell by the largest amount in four years as rising mortgage rates weaken homebuilding activity.
Home construction starts fell 14.7% month-over-month in March, from 1.55 million annualized units to 1.32 million annualized units, according to Census Bureau data released Tuesday. The number of single-family homes fell by 12.4% month-on-month.
According to LPL Financial Chief Economist Jeffrey Roach, the data shows how new home construction is “beginning to show cracks in the growth rate.”
“Housing construction is about to slow as potential homebuyers indicate this is a bad time to buy a home. Investors can expect residential investment to be a drag on GDP growth in the coming quarters. Housing activity may not fully stabilize until the Fed begins its easing cycle.”
The new government figures come after sentiment among builders was flat in April compared to the previous month, breaking four straight months of gains. The NAHB said that “buyers will hesitate until they can better gauge where interest rates are headed.”
“Looking ahead, we continue to think single-family homes will benefit from the lack of pre-owned homes on the market, shifting demand toward new construction,” Thomas Ryan, real estate economist at Capital Economics, wrote in a note to clients after the release. .
“But that strength will be offset by weakness in multifamily starts, which we expect to remain around current levels, leaving total housing starts little higher than they are now by the end of this year.”
The SPDR S&P Homebuilders ETF (XHB) was trading more than 1% lower on Tuesday morning.
