May 18, 2021

Housing starts fell by 9.5% to 1,569 thousand after having surged by 19.8% in March after having declined 11.9% in February.  A large portion of the February decline and March rebound is attributable to the weather which was so bad in February as a series of snow and ice storms rolled across the country disrupting economic activity for the entire month.  Think Texas..  Like every other economic indicator, starts have rebounded sharply since the recession ended last April and have far surpassed the levels where they were in January and February of last year.  Starts would be at an even faster pace but builders have having difficulty finding lumber at a reasonable price given the fires in the West, qualified workers, and a lot shortage.  Indeed, the elevated price of lumber is adding approximately $24,000 to the price of a new home. And mortgage interest rates, while historically low at 3.0%, have increased about 30 basis points over the last three months.  Permits are climbing higher and higher, but builders are unable to keep up.  There is demand for a faster pace of construction, but supply constraints are curtailing how quickly starts can rise.

One interesting point is that the recent growth in starts has all been in single-family homes.  In the past year single-family starts are 5.1% higher than they were in February of last year (just prior to the onset of the recession) while multi-family units are 8.6% below their February 2020 pace.  Home buyers and renters are taking advantage of record low mortgage rates to purchase new homes in the suburbs.

Builders certainly expect the housing market to continue to do extremely well in the months ahead.  The homebuilders confidence index for May now stands at 83 which remains close to the October level which was a record breaking, 35-year high of 90.

One of the factors boosting homebuilders confidence is the fact that mortgage rates fell to a record low level of 2.7%.  They have risen 30 basis points since the end of last year and now stand at 3.0% which is still extremely low.

Building permits rose 0.3% in April to 1,760 thousand after climbing 1.7% in March.  January at 1,883 thousand was the highest level for permits since May 2006.  Starts and permits should be at roughly comparable levels, which suggest that  the current level of starts should be at about 1,760 thousand, not their current level of 1,569 thousand..

The economy continues to open up.  Construction workers return to their jobs.  Home builders have already seen traffic through their model homes pick up to where it was prior to the recession.  Their confidence is high..  Mortgage rates have edged upwards to the 3.0% mark but remain low.    Our sense is that starts will  continue to climb to 1,800 thousand by the end of this year.  And, for what it is worth, we expect Q2 GDP to climb by 10.0% and 8.0% GDP growth for  2021.

Stephen Slifer

Charleston, SC