A contractor stacks roofing materials while working on a house under construction in the Toll Brothers Bowes Creek Country Club community in Elgin, Illinois.
Daniel Acker | Bloomberg | Getty Images
US housing construction rose unexpectedly in March, but single-family home starts slumped amid rising mortgage rates.
Housing starts rose 0.3% last month to a seasonally adjusted annualized rate of 1.793 million units, the Commerce Department said on Tuesday. Data for February has been revised upwards to a rate of 1.788 million units from the previously reported 1.769 million units.
Economists polled by Reuters had forecast a drop to 1.745 million units. Future housing permits rose 0.4% last month to 1.873 million units.
The 30-year fixed-rate mortgage averaged 5.0% for the week ended April 14, the highest since February 2011, up from 4.72% the previous week, according to data from mortgage financing agency Freddie Mac. Further gains are likely as the Federal Reserve adopts an aggressive monetary stance in the fight against sky-high inflation.
The Fed raised interest rates by 25 basis points in March, the first hike in more than three years. Economists expect the US Federal Reserve to hike rates by 50 basis points next month and soon start trimming its investment portfolio.
Rising borrowing costs coupled with higher home prices are reducing housing affordability for first-time buyers. The National Association of Home Builders/Wells Fargo Housing Market Index fell to a seven-month low in April, with homebuilders blaming “spiking increases in mortgage rates and continued supply chain disruptions.”
Nevertheless, the record low supply of housing should continue to support housing construction this year. There is a record stock of homes that have been approved for construction and have not yet begun.
Goldman Sachs estimates housing starts will rise 5% this year to 1.7 million, arguing that “when housing markets are tight like they are today, builders are likely to keep building because they have little fear.” should have that houses stand empty after completion. “
Single-family housing starts, which account for the largest share of residential construction, fell 1.7% in March to 1.200 million units.