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Housing Starts Feel Coronavirus Pinch: Worst Decline in 36 Years
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Homebuilders have started construction on new homes in the United States in a slower pace than what analysts had expected in March. The New Residential Construction report for March from the Commerce Department reveals the dampening effects of the coronavirus. Does this prepare us for a grim outlook for housing?
Let’s take a look at the March numbers for starts and permits.
Worst Monthly Decline Since the 1980s
Housing starts dropped 22.3% from February to 1.216 million in March, according to data jointly announced by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Apr 16. This represents the steepest month-over-month drop since March 1984, when starts had declined 26.4% following a construction boom in February. The March starts tally also missed the consensus mark by 7.9%.
Construction of single-family houses dropped 17.5%, while multifamily starts (comprising apartment complexes and condos) were down 32.1% from a month ago.
Regionally, the Northeast witnessed the most pronounced plunge of 42.5%. This is nearly double of what was realized in the South (down 21.3%), West (down 18.2%) and Midwest (down 21.5%). Nonetheless, new construction of single-family homes increased 6.1% in the West.
More Pain Ahead?
Building permits — a bellwether for future home construction — fell 6.8% in March from the previous month to a seasonally adjusted annual rate of 1.353 million, despite beating the consensus mark by 8.2%.
The decrease was mainly attributable to a 12% drop in permits issued for single-family units that account for the largest share of the housing market. Permits for multifamily buildings, duplexes, triplexes and quadplexes grew between February and March.
Although the starts/permits data show prominent declines on a month-over-month basis, both housing readings for March 2020 improved on a year-over-year basis, according to the release. Housing starts and building permits were 1.4% and 5% higher from the year-ago period, respectively.
Meanwhile, the latest indicator is not the first one that depicts the pandemic’s effect on housing. On Apr 15, confidence level among single-family builders declined by a significant 42 points to just 30 from March’s reading of 72. Importantly, this marked the highest monthly decline in the index’s 30-year history and lowest reading since June 2012 (read more: Builder Confidence Nosedives in April Amid Coronavirus Scare).
Furthermore, the Purchase Index — which tracks mortgage applications for only single-family homes — dropped for the fifth straight week. The index was down 2% from a week earlier and a striking 35% from a year ago, per the latest Mortgage Bankers Association or MBA's Weekly Mortgage Applications Survey for the week ending Apr 10.
Although 30-year fixed-rate mortgages decreased to 3.45% — the lowest since the MBA began its weekly applications survey in 1990 — it did little for homebuyers. Precisely, most borrowers are refinancing to save money on monthly payment as is evident from the 10% increase in the Refinance Index from the previous week. The metric was 192% higher than the same week a year ago. All these indications depict a contrasting portrait from what we have witnessed earlier this year (January and February).
It seems that the pain isn’t over yet. Notably, the COVID-19 outbreak only started to become a major factor by late March. So, the housing sector is yet to see the coronavirus-induced major slowdown in the months ahead with its April report, which will be released in May.
Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting, said, “The purchase market is still expected to rebound, as long as the public health measures to reduce the pandemic's spread are successful and result in a broader recovery."
The National Association of Home Builders or NAHB chief economist Robert Dietz stated that according to the recent poll undertaken by NAHB, 96% of its total members reported that virus mitigation efforts were hurting buyer traffic. He added that although the pandemic is severely disrupting residential construction and the overall economy, the need and demand for housing remain acute. He believes that as social distancing and self-isolation practices are relieving the pandemic’s effects, the economy is likely to come out of a recession later in 2020.
Presently, the economic backdrop for U.S. housing, which includes behemoths like Lennar (LEN - Free Report) , D.R. Horton (DHI - Free Report) , NVR. Inc. (NVR - Free Report) , Toll Brothers (TOL - Free Report) , PulteGroup (PHM - Free Report) and KB Home (KBH - Free Report) , is undoubtedly dismal. The above-mentioned housing data illustrates the depth of the coronavirus damage to the U.S. economy as more than 22 million Americans have filed for unemployment benefits over the past four weeks.
Nonetheless, although the nationwide mitigation practices to check the spread of COVID-19 have disrupted the spring homebuying season, the housing activity is expected to rebound as the pandemic effects subside.
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Housing Starts Feel Coronavirus Pinch: Worst Decline in 36 Years
Homebuilders have started construction on new homes in the United States in a slower pace than what analysts had expected in March. The New Residential Construction report for March from the Commerce Department reveals the dampening effects of the coronavirus. Does this prepare us for a grim outlook for housing?
Let’s take a look at the March numbers for starts and permits.
Worst Monthly Decline Since the 1980s
Housing starts dropped 22.3% from February to 1.216 million in March, according to data jointly announced by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Apr 16. This represents the steepest month-over-month drop since March 1984, when starts had declined 26.4% following a construction boom in February. The March starts tally also missed the consensus mark by 7.9%.
Construction of single-family houses dropped 17.5%, while multifamily starts (comprising apartment complexes and condos) were down 32.1% from a month ago.
Regionally, the Northeast witnessed the most pronounced plunge of 42.5%. This is nearly double of what was realized in the South (down 21.3%), West (down 18.2%) and Midwest (down 21.5%). Nonetheless, new construction of single-family homes increased 6.1% in the West.
More Pain Ahead?
Building permits — a bellwether for future home construction — fell 6.8% in March from the previous month to a seasonally adjusted annual rate of 1.353 million, despite beating the consensus mark by 8.2%.
The decrease was mainly attributable to a 12% drop in permits issued for single-family units that account for the largest share of the housing market. Permits for multifamily buildings, duplexes, triplexes and quadplexes grew between February and March.
Although the starts/permits data show prominent declines on a month-over-month basis, both housing readings for March 2020 improved on a year-over-year basis, according to the release. Housing starts and building permits were 1.4% and 5% higher from the year-ago period, respectively.
Meanwhile, the latest indicator is not the first one that depicts the pandemic’s effect on housing. On Apr 15, confidence level among single-family builders declined by a significant 42 points to just 30 from March’s reading of 72. Importantly, this marked the highest monthly decline in the index’s 30-year history and lowest reading since June 2012 (read more: Builder Confidence Nosedives in April Amid Coronavirus Scare).
Furthermore, the Purchase Index — which tracks mortgage applications for only single-family homes — dropped for the fifth straight week. The index was down 2% from a week earlier and a striking 35% from a year ago, per the latest Mortgage Bankers Association or MBA's Weekly Mortgage Applications Survey for the week ending Apr 10.
Although 30-year fixed-rate mortgages decreased to 3.45% — the lowest since the MBA began its weekly applications survey in 1990 — it did little for homebuyers. Precisely, most borrowers are refinancing to save money on monthly payment as is evident from the 10% increase in the Refinance Index from the previous week. The metric was 192% higher than the same week a year ago. All these indications depict a contrasting portrait from what we have witnessed earlier this year (January and February).
It seems that the pain isn’t over yet. Notably, the COVID-19 outbreak only started to become a major factor by late March. So, the housing sector is yet to see the coronavirus-induced major slowdown in the months ahead with its April report, which will be released in May.
Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting, said, “The purchase market is still expected to rebound, as long as the public health measures to reduce the pandemic's spread are successful and result in a broader recovery."
The National Association of Home Builders or NAHB chief economist Robert Dietz stated that according to the recent poll undertaken by NAHB, 96% of its total members reported that virus mitigation efforts were hurting buyer traffic. He added that although the pandemic is severely disrupting residential construction and the overall economy, the need and demand for housing remain acute. He believes that as social distancing and self-isolation practices are relieving the pandemic’s effects, the economy is likely to come out of a recession later in 2020.
Presently, the economic backdrop for U.S. housing, which includes behemoths like Lennar (LEN - Free Report) , D.R. Horton (DHI - Free Report) , NVR. Inc. (NVR - Free Report) , Toll Brothers (TOL - Free Report) , PulteGroup (PHM - Free Report) and KB Home (KBH - Free Report) , is undoubtedly dismal. The above-mentioned housing data illustrates the depth of the coronavirus damage to the U.S. economy as more than 22 million Americans have filed for unemployment benefits over the past four weeks.
Nonetheless, although the nationwide mitigation practices to check the spread of COVID-19 have disrupted the spring homebuying season, the housing activity is expected to rebound as the pandemic effects subside.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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