U.S. homebuilding rebounded sharply in February as the drag from cold weather eased, and while permits fell, they remained at higher levels, suggesting an acute shortage of houses will continue to underpin residential construction even as mortgage rates rise.
Housing starts jumped 6.8% to a seasonally adjusted annual rate of 1.769 million units last month, the Commerce Department said on Thursday. Data for January was revised higher to a rate of 1.657 million units from the previously reported 1.638 million units. Economists polled by Reuters had forecast starts increasing to a rate of 1.690 million units.
Permits for future homebuilding fell 1.9% to a rate of 1.859 million units. They increased in January to levels not seen since May 2006.
Despite mortgage rates rising as the Federal Reserve tightens monetary policy to fight high inflation, homebuilding is likely to remain supported by a dearth of homes available for sale. The U.S. central bank on Wednesday raised its policy interest rate by 25 basis points, the first hike in more than three years. The Fed also laid out an aggressive plan to push borrowing costs to restrictive levels by 2023.
There is a huge backlog of houses approved for construction that are yet to be started as builders struggle with shortages and very expensive materials. The National Association of Homebuilders said on Wednesday its measure of single-family homebuilders confidence fell to a six-month low in March. Its gauge of future sales was the lowest since June 2020.
"While housing demand should be negatively impacted by higher mortgage rates, housing starts should be buffered by the large number of new homes that have been sold but haven't yet been started," said Isfar Munir, an economist at Citigroup in New York. "These homes will have to be built at some point and will count as a housing start at that time."
Single-family housing starts, which account for the biggest share of homebuilding, jumped 5.7% to a rate of 1.215 million units last month. Single-family homebuilding increased in the Northeast, Midwest and South, but fell in the West.
Single-family building permits slipped 0.5% to a rate of 1.207 million units.
Starts for housing projects with five units or more gained 0.8% to a rate of 501,000. Building permits for this housing segment dropped 4.5% to a rate of 597,000.
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