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April 17, 2025

Housing starts slumped 11.4% in March on significantly lower single-family construction. The West and South led the contraction in activity. The South is the single largest market for new home construction; it determines the direction of the country, which makes the losses there all the more notable.

Tariffs weigh on building activity as input costs have been rising on tariff announcements alone. Builders are ordering ahead of tariffs, while producers are more willing to pass on price increases now than the last time tariffs were enacted in 2018.

Single-family starts dropped 14.2% to the lowest level in eight months. The three-month moving average fell to just over a million units, the lowest since November. Still-high mortgage rates coupled with rising insurance and real estate taxes are eroding affordability. Add the recent surge in measures of uncertainty and concern in consumers' attitudes, and a big purchase such as a home would be among the first to be shelved.

The latest Fannie Mae homebuyer sentiment survey showed that the share of respondents who think their personal financial situations will worsen over the next 12 months surged to 27% in March, the highest since July 2022, when the Federal Reserve was just starting its rate-hiking regime.

Multifamily starts were flat for the month. The three-month moving average fell to 381,000 units but has been trending higher since bottoming in May 2024. Builders pivoted away from starting new apartments as the backlog on new projects swelled to a record high. High absorption rates and a recent firming in rents should open the door to more construction. Rents are expected to continue to rise well into next year, given the long lead time on new projects and ongoing hurdles to the costs of new construction.

Permits held up better than starts, buoyed by a 1.6% jump in multifamily permits. Single-family permits were down 2% in March due to lower activity in the West and South. Smaller builders have been sitting on over six months� worth of housing inventory (more than needed to clear the market).  They have tighter margins and lack the flexibility to offer incentives such as mortgage buydowns that larger, publicly traded builders are able to do. Consolidation is expected to accelerate.

Builders have been pessimistic about single-family housing market conditions for a year. Slightly lower mortgage rates in early March helped spur some sidelined buyers to enter the housing market, boosting sales. Builders were not swayed; they remain concerned about future activity and are cautious of overbuilding.