Housing Construction activity is now at its highest level since September 2006.
By Manuel Gutierrez, Consulting Economist to NKBA
Housing starts recovered strongly in March, growing by 19.4% to an annual rate of 1.739 million units, reversing the declines of the preceding two months. This is the highest level of housing construction in nearly 15 years — since before the Great Recession in September 2006.
Both segments of new residential construction, single-family and multifamily housing, contributed to the increase. Single-family rose by 15.3% to an annualized rate of 1.238 million units, while multifamily jumped by a much sharper 30.8%, for an annual pace of 501,000 units.
The residential construction market has been robust over the past seven months. The monthly pace of construction in that period since September 2020 exceeded the 1.38 million housing units actually built in all of 2020, shown by the gray horizontal lines in Figure 1. Over those seven months, monthly construction has averaged 1.55 million units (annualized.)
Housing starts grow by nearly 20% in March, and are now running at a pace not seen in nearly 15 years.
A similar pattern has occurred in the single-family segment, shown in the upper right panel. Since September, single-family construction has averaged 1.16 million units at an annualized pace, which is higher than the 990,000 units built all of last year.
The multifamily sector the picture is different, despite the strong increase in March starts. Since August, multifamily construction has generally been lower than the 2020 total of 389,000 units built, except for the recent numbers recorded in January and March. Despite those robust levels of multifamily construction, the 106,000 units started this year are 7.4% lower than the comparable first quarter of last year.
On a long-term basis, Figure 2 clearly shows that March’s annualized pace of 1.739 million units is the highest since 2006. Also, a quick inspection of the chart reveals that it has taken a long time to recover from the collapse in the housing market that began that year.
As a consequence of irresponsible lending practices from financial institutions and poor government housing policies at the turn of the century, millions of homes were foreclosed in the period from 2007 to 2010, leading to the economic recession of 2007-2009.
It took under four years for new residential construction to fall from an annual rate of 2.273 million early in 2006 to the low point of 478,000 by 2009. That’s a 75% plunge. Although the housing market recovery has passed the 10-year mark, it has yet to approach the previous highs. Current housing construction is more than 500,000 units below peak levels.
As expected, the pace of housing construction has differed by region. There are substantial gains in three regions, shown in Figure 3, with the West the only region bucking the trend.
The largest gain is in the Midwest, where total starts more than doubled in March to a rate of 303,000 units. Year-to-date actual starts of 39,900 units in the first quarter are 28% higher than the same period a year ago.
Housing starts in the South, the largest housing market in the nation, rose by 14% to an annual rate of 874,000 units. Year-to-date through March, a total of 195,000 houses have been started — 5.3% more than the first quarter of last year.
The Northeast also enjoyed a rebound in housing construction in March, catapulting by 64% to an annual rate of 182,000 units. Although year-to-date through March ,starts are 23% above last year — the second-highest among the four regions — the Northeast generates just about 10% of the nation’s housing construction.
The West is the only region that didn’t tap into the positive trend. Total starts there fell by 14% in March to an annual rate of 380,000 units. Despite the decline, starts for the first quarter of this year are 10% higher than the same period in 2020.
