Housing starts skyrocketed 19.4% in March to 1.739 million, blowing past expectations of 1.613 million and well above the 1.5 million long-term equilibrium, according to government data released Friday.
The robust increase is a reversal from February’s dip, which in hindsight appears to have been related more to the deep freeze that gripped the nation than anything else. Permits lagged behind housing starts, rising only 2.7% to 1.76 million in March, which was to be expected as builders work through the glut of permits from the past three months.
Beyond the headline numbers, there were positive trends in single-family starts, which increased 15.2% month over month as builders race to meet the demands of millennials marching to the suburbs and achieving that homeownership dream that has eluded many of their generation. The pent-up demand from millennials, combined with the desire of baby boomers to age in place, makes this hot housing market more sustainable than previous ones.
There are, however, headwinds that could hamper the market if left unaddressed. The latest challenge is how this unprecedented demand has driven the price of lumber 75% over pre-pandemic highs. In addition, supply has been hindered as production was slowed because of pandemic fears, wildfires in the Pacific Northwest destroyed reserves and tariffs increased the cost of imported lumber.
As the housing market has surged, so has the price of lumber, rising 75% over pre-pandemic highs.
These factors have all contributed to increased prices and could hamper continued development. As the Biden administration looks to accelerate the economic recovery through development, reducing the lumber tariffs once again can help relieve supply-side restrictions that are driving up costs and reducing productivity.
The other challenge continues to be local permitting and zoning restrictions, a constant frustration for developers as local demand for housing rarely aligns with local policy for development. This may be changing as some cities and towns look to capitalize on the work-from-home phenomenon and become the next Zoom-town.
The desire to attract young professionals from coastal cities will require new housing, with home offices and urban-like retail. The municipalities that move quickly to pave the way for these developments can reshape their future.
The robust housing market will continue to be a driver of economic growth as supply races to keep up with demand. While headwinds exist, there are signs that regulators and homebuilders may be more aligned than ever. A mutual understanding between these two groups would be the best news for prospective homebuyers.
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