The coronavirus pandemic took its toll on U.S. home construction in March.
According to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development, housing starts fell 22.3% compared with February to a seasonally adjusted annual rate of 1.216 million.
However, housing starts were still up 1.4% compared with March 2019 – an indication of just how strong the recovery had been the housing sector up until the crisis began.
Starts of single‐family homes in March were at a rate of 856,000, a decrease of 17.5% compared with 1.037 million in February.
Starts of multifamily homes (five units or more per building) were at a rate of 347,000, a drop of 32.1% compared with 511,000 in February.
Building permits also fell. They were at a rate of 1.353 million, down 6.8% month-over-month.
However, permits were up 5.0% compared with a year earlier.
Permits for single‐family homes in March were at a rate of 884,000, a drop of 12.0% compared with 1.005 million in February.
Permits for multifamily dwellings were at a rate of 423,000 an increase of 5.2% compared with the previous month.
Housing completions were down 6.1% month-over-month and were down 9.0% year-over-year.
The decrease in housing starts comes despite the fact that home construction has been deemed an essential business in most of the nation.
“And in the few states where the governors have not acted, we urge them to deem construction as essential,” says Dean Mon, chairman of the National Association of Home Builders (NAHB), in a statement. “Housing can help lead an eventual rebound, as it has done in previous recessions.”
“We expect further declines in housing starts in April, due to the unprecedented decline in builder confidence in our latest member survey,” adds Robert Dietz, chief economist for NAHB. “It is worth noting that there are currently 534,000 single-family homes currently under construction and 684,000 apartments. Approximately 90 percent of these single-family units are located in states where home building is deemed as an ‘essential service,’ while 80 percent of apartments are located in such states.”
Odeta Kushi, deputy chief economist for First American, notes that “prior to the pandemic, builders were already faced with several supply-side headwinds: increasing material costs, a chronic lack of construction workers, a dearth of buildable lots, and restrictive regulatory requirements in many markets.”
“Now, those headwinds remain, but builders must also grapple with temporary reduced demand from a struggling labor market and ‘shelter-in-place’ orders,” she says.
Kushi says she does not expect a rapid recovery for home construction after the pandemic resolves.
“Once health fears subside and the economy re-opens, it will be a slow climb,” Kushi says. “The industry will continue to deal with the job losses, tightened credit, and economic damage, but the fundamentals that drive new home sales – near record low mortgage rates, a limited supply of existing homes for sale, and sturdy demand driven by millennials aging into homeownership, will begin to boost the market once more.”
Bill Banfield, executive vice president of capital markets for Quicken Loans, had this to add:
“We are now seeing the true effects of the coronavirus on the housing industry. Despite the fact that construction can continue during shelter-in-place orders, home buying demand has plummeted and builders are seeing materially lower foot traffic. When the country reopens, the lingering effects of massive job losses could weigh on housing for an extended period of time.”
Coinciding with the drop in home construction is a massive decrease in NAHB’s Homebuilder Sentiment Index.