U.S. new-home construction unexpectedly fell in March, decelerating to the slowest pace since May 2017 and suggesting builders remain wary even as lower mortgage rates and steady wage gains offer support to consumers.
Residential starts fell 0.3 percent to a 1.139 million annualized rate after a downwardly revised 1.142 million pace in March, according to government figures released Friday. So far this year, starts have fallen 9.7 percent. Permits, a proxy for future construction, slumped 1.7 percent to a 1.27 million rate. Both figures missed estimates.
The drop signals developers continue to struggle to build affordable properties amid rising labor and materials costs. Still, there have been signs of stabilization in real estate, with mortgage rates down from last year and the Federal Reserve signaling that it's likely to keep borrowing costs on hold this year.
Average 30-year mortgage rates have drifted down to 4.17 percent after peaking at nearly 5 percent in November. But years of price gains eclipsing income growth has left many buyers unable to afford a home, possibly suppressing construction activity.
"Higher home prices have eaten into some of the increased purchasing power driven by lower mortgage rates and higher incomes," said Danielle Hale, chief economist at realtor.com. "As a result, while some indicators show that buyers have more momentum than initially expected this year, affordability is still very top of mind and could help explain slower housing starts."
Data next week may add to signs of a cooling-yet-stable housing market in March. Existing home sales -- which account for about 90 percent of the market -- are projected to ease from February's jump, the biggest since 2015, while new home sales are forecast to pull back from the best pace in almost a year.
Housing starts fell last month in the Northeast, Midwest and South, but they surged in the West. The construction data can be volatile, so the regional levels of home building can change sharply on a monthly basis.
The results may reflect some influence from harsh weather.
Economists noted that housing starts might have been stifled by severe weather, particularly heavy snowfall in the Northeast and record flooding along the Mississippi and Missouri rivers, but that the underlying challenge for expanding construction might be a lack of workers.
"Home builders still face challenges such as labor shortages and high labor costs," said Joel Kan of the Mortgage Bankers Association. "These headwinds continue to slow the pace of construction, and on a year-over-year basis, single-family starts have fallen in five of the last six months."
Single-family starts fell 0.4 percent, with permits down 1.1 percent. Starts for multifamily homes, a category that tends to be volatile and includes apartment buildings and condominiums, was unchanged at a 354,000 pace as permits fell 2.7 percent.
About 197,000 homes were authorized but not yet started, the same level as the prior two months and a signal of steady supply for the months ahead.
The report, released jointly by the Census Bureau and Department of Housing and Urban Development, will next be released on May 16.
Information for this article was contributed by Jeff Kearns of Bloomberg News and by Josh Boak of The Associated Press.
A Section on 04/20/2019