The pace of U.S. home construction rebounded less than forecast in March, held back by declines in warmer parts of the country that indicate the recovery in residential building will be slow to develop.
Housing starts climbed 2.8 percent to a 946,000 annualized rate following February’s 920,000 pace, which was higher than previously reported, Commerce Department data showed today in Washington. The median estimate of 78 economists surveyed by Bloomberg called for an increase to 970,000. Permits for future projects declined.
While warm weather and the onset of the spring selling season boosted housing activity in the Northeast and Midwest, the industry’s recovery has been challenged by higher interest rates, slow wage growth and tight credit, which have put homeownership out of reach for some would-be buyers. Bigger gains in employment are necessary to overcome declining affordability.
“Housing will contribute positively to GDP this year, but not by nearly as much as in 2012 and 2013,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York, who projected a 945,000 pace and the second-most accurate forecaster for starts over the past two years, according to data compiled by Bloomberg. “We are seeing continued improvement in housing starts, but at a slower pace.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June climbed 0.4 percent to 1,846.8 at 8:41 a.m. in New York as Yahoo! Inc. led gains by technology companies after reporting earnings that beat estimates.
Estimates for starts in the Bloomberg survey ranged from 909,000 to 1.05 million.
Building permits declined 2.4 percent to a 990,000 annualized pace, a sign that construction still has room to expand this month. They were projected to be little changed at 1.01 million, according to the Bloomberg survey median.
Work on single-family properties climbed 6 percent to a 635,000 rate in March from 599,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings fell 3.1 percent to an annual rate of 311,000.
Improving weather probably played a role in the gain in starts as construction surged 65.5 percent in the Midwest and 30.7 percent in the Northeast. Starts dropped 9.1 percent in the South, to the slowest pace since October, and 4.5 percent in the West to a six-month low.
Weather dealt a setback to builders and other businesses at the beginning of the year as snow blanketed streets and bitter cold kept consumers at home in parts of the country.
The National Association of Home Builders/Wells Fargo builder sentiment gauge improved slightly this month, to 47 from a revised 46 in March that was weaker than initially reported, the Washington-based group reported yesterday. Readings greater than 50 mean more respondents report good market conditions.
Mortgage costs remain historically low. The average 30-year, fixed-rate mortgage was 4.34 percent for the week ended April 10, compared with 3.43 percent a year ago, according to Freddie Mac in McLean, Virginia.
While the market is slowly returning to health, builders have yet to catch up with demand. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.
Slow progress in housing has challenged lenders, who have seen a drop in mortgage applications as rates inch up. At JPMorgan Chase & Co., production of new mortgages in the first quarter was down 68 percent from a year ago, Chief Financial Officer Marianne Lake said. Head count for the division is down about 14,000 since the beginning of last year.
“Despite a relatively favorable rate environment, the market got off to a slow start in 2014,” Lake said on an April 11 earnings call. “We’re seeing tight housing inventory in some markets and the purchase market was affected adversely by the severe weather. This led to a challenging quarter for the mortgage business.”