Housing Market Sees Flood of New Homes

Completed new-home construction soared in February, the Commerce Department said on Tuesday, ahead of what tends to be a busy season for the housing market in the spring.

Privately owned housing completions skyrocketed by nearly 20 percent last month compared to January and were up about 10 percent from a year ago to more than 1.7 million. For single-family properties, they were up by 20 percent for the month to more than a million new homes.

Housing starts also rebounded from the doldrums of the winter, jumping by close to 11 percent to 1.5 million. Single-family properties in this space also jumped, up nearly 12 percent to 1.1 million units for February.

The warming weather has helped turbocharge the rebound, economists say, especially in the South and the Midwest, which led the way.

"Record temperatures in the Midwest and much drier conditions in both the Midwest and South contributed to construction activity during the month," Yelena Maleyev, a senior economist at KPMG, said in a note shared with Newsweek.

The multi-family segment - properties with at least five units - also saw a rebound. Completions in this area of the market jumped to 644,000 in what was the highest recorded figure in half a century, Maleyev pointed out, while the single-family segment saw the highest completions since 2007.

"That is good news for the significantly undersupplied housing market," Maleyev said.

Experts say the rebound is a signal of the market recovering from some of the volatility seen during the pandemic, which helped snarl supplies for construction materials that then pushed up costs.

"Now supply chains are functioning better and construction times are shortening," Bill Adams, chief economist for Comerica Bank, said in a note shared with Newsweek. "In particular, the big wave of multifamily projects started during 2021 and 2022 is coming to market. That is holding asking rents roughly steady nationally, and causing year-over-year declines in metros that are adding housing supply the fastest, mostly in the Sun Belt."

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The housing market has been grappling with an environment of elevated mortgage rates and high prices, which has stifled demand from buyers struggling to afford a home. Meanwhile, high interest rates, particularly in the existing homes market, kept sellers reluctant to sell as they wanted to keep their low home-loan rates, which in turn limited supply.

An increase in the construction of single-family properties will help release that pressure, economists said.

"In the single-family segment, builders are shrinking floorplans," Adams said. "In combination with mortgage-rate incentives, that is driving sales of new construction and fueling continued growth in the segment, which accounts for a majority of residential construction."

The outlook for the year is also positive. Building permits for new-home construction were up by nearly 2 percent to 1.5 million compared to the prior month. This is a forward-looking indicator and suggests more properties are about to come to market.

"Building permits, the more forward-looking gauge of housing activity, continue to creep higher," Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said in a note. "Our baseline assumes that housing starts will average 1.5 million in the second half of this year, but the February data may lend an upside risk to that forecast."

New single-family construction will lead the way, according to Vanden Houten.

"Single-family starts, where there is still a need for supply, will drive the gains in housing starts in 2024," she said. "Multifamily starts are more likely to decline or move sideways, since supply in this sector, including units still in the pipeline, is more plentiful."

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The latest data provided a good omen for the market as warmer weather approaches.

"As we enter the prime spring home-buying season, and as rates are expected to fall slightly lower in the second half of the year, activity is expected to pick up even more," KPMG's Maleyev said.