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Fannie Mae chief economist Doug Duncan said the latest reading puts first-quarter construction moderately above their forecast as demand for housing proves to be more resilient than they had previously expected.
“The supply of existing homes remains constrained both because of a decade of underbuilding following the Great Financial Crisis and, more recently, the lock-in effect discouraging current homeowners from listing their homes for sale (and thus giving up their low mortgage rate),” Duncan explained. “As such, in light of an extremely limited supply of existing homes for sale, many homebuyers are turning to new homes. This phenomenon coincides with lower building materials costs compared to a year ago, which allows homebuilders to offer stronger concessions and rate buy-downs while maintaining profit margins.”
Within the overall figure, single-family housing starts rose 2.7% to an 861,000 annualized rate. However, this remains 27.7% lower than a year ago. Multifamily production, while still at historically high levels, gave back part of its early-year surge with a 5.9% decline to a SAAR of 559,000, Duncan noted.
Read next: Multifamily conditions show positive signs despite headwinds in housing creation – NHMC
“It remains unclear how much, if at all, recent banking turmoil and tighter credit conditions affected these data,” he said. “On one hand, mortgage rates pulled back, which could spur some additional single-family demand. However, tighter credit conditions would result in homebuilders having a harder time financing new projects, which would weigh on future construction activity.”
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