New U.S. Home Construction Rebounded in February to Strongest Pace Since 2006

by Suzanne Halliburton
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Justin Sullivan/Getty Images

Need a good economic number? Check out new home construction. It’s off to its quickest pace in 16 years.

As the spring buying season begins, the numbers indicate that builders probably are better able to meet demand of the sizzling real estate market.

New Home Construction Numbers: What They Mean

  • Construction of new homes is at highest level since 2006
  • Key is for inventory of homes to meet demands of sizzling market.
  • Interest rate increases could impact what buyers are able to afford.

Bloomberg reported that home construction increased 6.8 percent in February. That was an annualized rate of 1.77 million. Analysts predicted a rate of 1.7 million.

Let’s break down the numbers. First, the numbers are a 22 percent jump from this time a year ago as builders appear better able to keep up with demand. Construction for single-family homes increased 5.7 percent to a projected 1.22 million units this year. Meanwhile, the start of multi-family construction (apartments, condos) jumped by 554,000. That was the most since January 2020, in the weeks before the Covid-19 pandemic shut down the world.

Plus, the number of homes given the go-ahead for construction still is high. It’s at its best levels since 1974. Maybe home prices now will stabilize. They increased by almost 19 percent last year. But here’s a downside for buyers wanting to see prices come down. According to Zillow, the national inventory of available homes dropped to 729,000 listings. That’s a 25 percent drop from last year. It’s also almost a 50 percent drop from February 2020.

But it’s offset by the fact that the number of single-family houses under construction continues to rise. Those numbers are at their highest level since 2006.

“We are right in the heart of spring homebuying season,” Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune last week. “And it’s wild, and it’s crazy out there. It is causing some frustration at this point in the real estate market. It’s going to be tough (for buyers) through at least the spring.”

Meanwhile, the construction industry isn’t feeling optimistic going forward. Home builders’ confidence fell to a six-month low. That’s because outlook for sales dropped to its lowest levels since June 2020.

The pessimism is due to supply chain issues and accelerating inflation. Plus, the ongoing crisis in Ukraine is impacting oil prices. It all plays a part in the construction of a home. And, potential buyers may not have as much to spend on a home.

Meanwhile, the Federal Reserve upped interest rates this week for the first time since 2018. There could be six more coming this year. The interest rate jumps will up the mortgages for potential buyers. Again, consumers may not be bullish on buying a new house, which could curtail home construction. Then again, decreasing demand could help the home construction catch up with the supply.

Outsider.com