March 2024 Housing Starts: Builders Scale Back New Home Construction in Anticipation of Prolonged High Interest Rates

• Building permits issued in March increased to 1,458,000 (SAAR). That’s 4.3% below the revised February rate and 1.5% higher than a year ago.
• Housing starts increased to 1,321,000 (SAAR) in March, down 14.7% from the revised February estimate and 4.3% lower than a year ago, according to the U.S. Census Bureau. 
• Single-family housing starts increased to 1,022,000 (SAAR) in March, down 12.4% from February and 21.2% above last March. Single-family construction drove most of the increase in housing starts in the past year.

What happened: Despite falling more than expected in March, single-family housing starts remain 21.2% above last year’s pace. Multi-family construction also continued to slow, attributed to the already large number of apartment buildings under construction and easing apartment rent growth. Construction on buildings with 5 or more units decreased by 20.7% from March and 43.7% from the previous year.

Why this matters: The slowdown in single family housing starts reflects a more cautious outlook. Although builder sentiment about current sales remains generally positive, sales expectations for the next six months have fallen slightly. Single family starts fell in March in part to the large number of homes still under construction, but also perhaps because builders are beginning to anticipate that interest rates will likely remain elevated for much longer than previously thought.

Despite the headwinds, fewer builders are having to cut prices. Only 22% of builders are cutting their prices this month, down from 24% last month and 36% in December 2023 according to the National Association of Home Builders. Average price cuts at 6% remain stable, with fewer builders offering sales incentives suggesting resilient housing demand.

Demographic factors as well as rising inflation-adjusted incomes and wealth continue to support housing demand. At the same time, the stock of existing homes that is currently available for sale remains 36% below pre-pandemic levels and home values increased faster this month when compared to March 2023. The persistent housing shortage has supported growth in house prices.