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The coronavirus pandemic is proving to be a tough time for home construction, even if the sector has been deemed to provide an essential service in most states.
After yesterday’s news that builder sentiment slumped to a record low amid COVID-19, monthly data from the U.S. Census Bureau, published today, shows that seasonally adjusted housing starts plummeted 22.3% in March compared to February.
“As the coronavirus pandemic expands in the United States, economic activity has been encased in a block of ice,” said realtor.com Senior Economist George Ratiu. “With consumers confined at home in most states, housing markets are feeling the chill. Yesterday’s NAHB/Wells Fargo WFC homebuilder sentiment highlighted the frostiness.”
Homebuilding entered 2020 on a strong footing after years of struggling to meet new home demand. Earlier in the progression of the coronavirus, some builders were able to substitute imported building materials with U.S. alternatives, while sales switched to online channels and workers still reported to job sites.
This month, however, builder sentiment dipped to 30 in the latest reading of the housing market index by the National Association of Home Builders/Wells Fargo. A reading below 50 is considered negative.
The deflated confidence in April marks the largest single-month change in the 35-year history of the index and the first negative reading since June 2014. Only last month, builder sentiment stood at 72 points, when low interest rates and tight inventory still fended off some of the emerging adverse effects of the coronavirus.
“This unprecedented drop in builder confidence is due exclusively to the coronavirus outbreak across the nation, as unemployment has skyrocketed and gaps in the supply chain have hampered construction activities,” said NAHB Chairman Dean Mon.
Home starts collapse in March
NAHB Chief Economist Robert Dietz expects that the historic decline in builder confidence could prompt further drops in home starts, which stood at 1.2 million in March.
While that tally is 22.3% lower than it was in February, it still remains 1.4% higher year-over-year, the U.S. Census Bureau reported. Nonetheless, the monthly decrease in housing starts is the worst drop since March 1984, which posted a 26.42% fall.
U.S. Census Bureau and U.S. Department of Housing and Urban Development chart of total new housing … [+]
Federal Reserve Bank of St. Louis
In March, the annual pace of housing starts was 856,000 (17.5% below the February figure) for single-family homes and 347,000 (a 31.6% drop from February) for multifamily buildings with five units or more.
“It is worth noting that there are 534,000 single-family homes currently under construction and 684,000 apartments,” said Dietz. “Approximately 90% of these single-family units are located in states where home building is deemed as an ‘essential service,’ while 80% of apartments are located in such states.”
Meanwhile, the seasonally adjusted home completion rate of 1.277 million in March also lagged behind February – by 6.1%. For single-family residences, the monthly gap amounts to 15%. Compared to February, building permits slumped 6.8% in March but maintained a 5% increase year-over-year.