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Experts: Lackluster housing construction growth is disappointing

Need continues to rise for more housing

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Housing starts showed lackluster growth in March as the seasonally adjusted annual rate dropped 6.8%, disappointing economists and leaving the housing market lacking in new housing supply.

Experts explained new construction activity hit its second lowest level over the past six months at a time when the market is in the most need of new housing inventory.

“A major housing shortage exists in this country,” said Lawrence Yun, National Association of Realtors chief economist. “It is therefore disappointing to witness in March the continued lackluster performance in new home building, which was the second lowest activity over the past six months.”

“Home prices have risen by 41% and rents have climbed 17% over the past five years at a time when the typical worker wage has grown by only 11%,” Yun said. “To relieve housing costs, there simply needs to be more homes built.”

However other economists said nothing about the decrease in home starts, and focused only on housing completions.

“New home completions ticked upward 3.2% from 1,216,000 in February to 1,260,000 in March as the unusually warm winter helped builders advance their completion schedules,” realtor.com Senior Economist Joseph Kirchner said. “Since this one-time event reduced the number of construction projects in the pipeline, we hope this will translate into more starts in the coming months.”

“That is good news for buyers hoping to find a variety of homes to choose from in their price range,” Kirchner said. “This trend will eventually affect starts and new home completions, though we will continue to see a shortage of homes on the market.”

One expert, while acknowledging the increase in housing completions, explained the dip in housing starts will bring a supply shortage later this year.

“March’s housing starts numbers bring a mixed bag of news,” Trulia Chief Economist Ralph McLaughlin said. “Completions were up, which means homebuyers can again look forward to much needed new supply.”

“On the other hand, starts were down, which means medium-run supply might dip in the second half of the year,” McLaughlin said.

But one expert predicts this month’s annual rate came in just under the number needed to meet the rising demand.

“Millennial household formation is beginning to have meaningful impact on housing demand and will likely only increase,” said Mark Fleming, First American Finance chief economist.  

“Currently, I estimate that the amount of housing supply necessary to just keep pace with demand is probably around 1.5 million housing units a year,” Fleming said. “The fact that this month’s housing completions were 1.2 million, an increase from just over 1 million a year ago, is good news, but still not enough.”

And another expert, who served as chief economist at Fannie Mae for more than 20 years, explained the brightest section of the report was in housing permits.

“Permits, a leading indicator of future starts, rose by 3.6%, and suggest that March’s decline in starts will likely be short-lived,” Nationwide Chief Economist David Berson said. “Permits are an especially useful indicator of future multifamily starts, as single-family permits are more contemporaneous with starts, and permits for 5+ unit buildings jumped by 18.3%.”

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