Housing starts and permits rebounded sharply in February after unfavorable weather slowed projects across the country in January. Housing starts rose by 10.7% in February, while permits increased by 1.9%, according to data released by the Commerce Department on Tuesday.
The increases exceeded forecasts, which is encouraging news given the continuing imbalance between housing demand and supply. A more balanced housing market would help ease shelter inflation, one of the biggest components of overall inflation.
In February, housing starts reached 1.52 million on an annualized basis, with the six-month moving average at 1.45 million. This figure remains below the 1.7 million of long-run housing starts needed to sustain increasing demand.
Despite mortgage rates decreasing from recent highs, stronger-than-expected economic activity has raised the prospect that the Federal Reserve is unlikely to cut rates significantly this year. For this reason, conditions in the housing market are expected to remain tight for the rest of the year.
Read more of RSM’s insights on real estate and the middle market.
The welcome news for the housing market, however, was the spike in completions to 1.7 million, the highest since 2007. With demand improving for new homes and housing prices remaining elevated, builders have had more incentive to finish their projects on time to capture a larger share of the market, which is left by existing homeowners who are reluctant to part ways with their assets because they still have mortgages with low rates.
It is also encouraging to see that the government is beginning to address housing imbalances on a larger scale. Recently, in his congressional testimony, Federal Reserve Chairman Jerome Powell mentioned housing inflation as one of the top concerns. The Biden administration’s proposed policy to subsidize first-time homebuyers, while likely having a small impact in easing the imbalance, is a step in the right direction.
