What happened
New residential construction activity was mixed in March, with permits rising slightly month over month (+1.6%) but starts falling 11.4% from February and completions falling by 2.1%. This month’s data, the last before the tariff announcements of early April, will serve as an important benchmark for how builders respond to the effects of the trade war. As has been the case for over a year, the number of units completed exceeds the number permitted or started. Builders know that the US is short nearly 4 million homes, so there is pent-up demand for units that can be delivered today at today’s price point. Builders also know that tariffs, especially ones levied against construction inputs like lumber, gypsum, and steel, will hurt their bottom line and lead to less enthusiastic prospective buyers. We anticipate depressed construction activity in the months to come, especially as measured by permits and starts, as a result of these tariffs.
Where it happened
Multifamily projects outperformed single family home projects in terms of permits and starts, but single family completions grew in March (+0.9% month over month, +9.6% year over year) while multifamily completions fell (-8.2% month over month, -4.4% year over year). Builders are anticipating demand for rental units in the future, but in the current environment, where rent has been falling for 20 consecutive months on a year over year basis, they are in less of a hurry to immediately deliver these finished multifamily units. Bucking that trend is the Midwest, where completions skyrocketed 69.9% from February with only 12.4% growth in single-family completions.
Looking forward, the South will continue to see the lion’s share of new construction. About 56% of all permitted units are in the South and permits in the South are growing, 3.0% month over month and 4.5% year over year. Single family home permitting is growing the fastest in the Northeast, at 12.9% month over month and 25.0% year over year, and there were more single family homes permitted in the Northeast in March than there have been in any of the past twelve months. Given the regional disparities in terms of home prices and time on market, it appears that the new focus on the Northeast could be very profitable for builders, while the South is less in need of additional inventory.
What does this mean for homebuyers, sellers, homeowners, and the housing market
The current political and economic climate will affect nearly every industry, but it is essential that we monitor how homebuilding holds up in particular. America needs more homes to be built to address the housing crisis we find ourselves in, but builders are highly exposed to barriers in international trade. March’s new construction data is not exceptionally notable except that it provides a high-water mark to compare against when assessing the direct impact of the trade war on housing supply.