Housing starts, a key proxy for the residential investment component of gross domestic product, plunged in March, implying more downside risk to growth in the first quarter.
Housing starts fell by 11.4% on the month to 1.3 million on an annualized basis, well below the equilibrium level between supply and demand.
In addition, housing completions fell for the second month in a row, falling by 2.1% in March, consistent with declining sentiment among builders.
Housing supply should remain tight in the coming months, providing no material relief to elevated home prices that have been a key driver of elevated inflation.
Building permits, a proxy for future starts, rose modestly at 1.6% after falling three months in a row.
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The uncertainty around trade policy is also a critical factor that affects building activities. Building materials are at the top of the list when it comes to goods that are affected by higher tariffs.
The lack of clarity around prices of materials and the secondary effect on overall demand have kept builders more on the sidelines.
If the current volatile economic conditions continue, we should expect a slow year ahead for home builders and housing activities.
