Starts, Permits Plummet As Rates Stabilize Near 7%

Residential construction reversed gains in March, clocking its biggest dip since August 2023 as builders watch rising rates.

Starts and permits both slipped in March, according to data from the U.S. Census Bureau. Starts tumbled by a stunning 14.7% month-over-month to a seasonally adjusted annual rate of 1,321,000. This is below all estimates in a Bloomberg survey of economists.

Permits were down 4.3% to an adjusted rate of 1,458,000. Both single- and multi-family projects were impacted, with multi-family construction slipping to their lowest point since the beginning of the pandemic.

This is a reversal from the month prior’s boost, the result of a wave of construction resuming after winter weather restrained builders at the beginning of 2024. With milder weather, that increase has dissipated.

Notably, builder sentiment stalled in March after rising consistently for four months. Prospective buyers backtracked as rates held near 7%, and builders are responding with caution.

Analysts have soured on the idea of significant Federal rate cuts this year as recent data showed robust inflation, 

“The housing recovery has stalled for now as home builder expectations of sharply lower interest rates this year have faded,” Christopher Rupkey, chief economist at FWDBONDS, told Reuters.

“One thing is for certain, and that is home prices are going to be on an upward, more unaffordable trend without more supply.”

But First American Chief Economist Mark Flemming noted that shrinking demand could lead to prices plummeting. The company’s March Home Price Index registered cooling prices, though they remain more than 50% above pre-pandemic levels.

“Many sellers will remain on strike keeping a lid on supply. However, as we saw last fall when mortgage rates peaked, demand may also wane. Even though the supply of homes for sale will remain tight, sagging demand should further slow price appreciation in a ‘higher-for-longer’ mortgage rate environment,” he said.

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