February’s housing starts are bad news for the housing market

February’s housing start numbers have been disappointing for the housing market. Housing starts fell last month by 10.3% to a seasonally adjusted annual rate of 1.42 million units, according to HUD and the Census Bureau. As house prices appreciation has accelerated across the country since Q3 of 2020, many saw an increase in new home supply as a possible cure for looming affordability issues, especially in frothy suburban markets. February’s housing starts may tell us that home builders aren’t riding in to save the day anytime soon.

It seems that 2020’s endemic problem with lumber prices has played a key role in declining housing starts. Rising interest rates, too, have dropped the number down. February’s ice storm across much of the central US also depressed these numbers, but economists and experts shared with MPA that the issues of these weak housing start numbers are far more structural, and likely to shape the housing market for at least the medium-term.

“While single-family starts for the first two months of the year are 6.4% higher than the first two months of 2020, there has been a 36% gain over the last 12 months of single-family homes permitted but not started as some projects have paused due to cost and availability of materials,” said NAHB chief economist Robert Dietz (pictured). “Single-family home building is forecasted to expand in 2021, but at a slower rate as housing affordability is challenged by higher mortgage rates and rising construction costs.”

Dietz noted that while lumber prices are playing an outsized role in this gap between permitted and started houses, builders are struggling with a number of key supply chain issues. Appliances, for example, are becoming harder to acquire and install in a timely, cost-effective manner.