Unforeseen as it was, new housing projects launched by homebuilders in February defied expectations, breaking free from the shackles of a downward spiral triggered by harsh winter storms in January.
A remarkable surge of 10.7% in housing starts month-on-month was witnessed in February, catapulting to an annualized rate of 1.521 million, surpassing forecasts of 1.425 million. The standout growth was predominantly driven by single-family housing starts gaining momentum.
In stark contrast, the previous month of January witnessed a mere 1.374 million housing starts, marking a staggering 12.3% downtrend from the preceding month, primarily impeded by unfavorable weather conditions.
Simultaneously, building permits, revered as a harbinger of forthcoming building endeavors, climbed by 1.9% in February to reach 1.518 million.
While the specter of soaring interest rates continues to loom over the housing market, there has been a recent reprieve as the average 30-year mortgage rate has gently subsided over the last three weeks, settling at 6.74% as of March 14.
Though the sales of new homes are tentatively rebounding, they still linger below the heights of spring and early summer in 2023. January witnessed the sale of 661,000 new homes, falling short of the 680,000 forecast. Predictions for February sales are set at 673,000.
Ian Shepherdson, the esteemed chief economist at Pantheon Macroeconomics, explained, “Demand for new homes persists, propped up by a scarcity of existing homes for sale. Few existing homeowners wish to relocate, having secured ultra-low mortgage rates during the pandemic.”
In the current scenario where steep interest rates and lingering affordability challenges pose the largest impediments to sales, homebuilder shares have faltered, struggling to navigate this turbulent market.
With demand holding firm and supply in short measure, one can expect average house prices to maintain historic highs, looming like towering peaks on the horizon.
Presently, the average house price in the U.S. stands at approximately $492,000, a dip from the record high of $552,600 recorded in the fourth quarter of 2022, yet still towering when viewed through the lens of historical context.
Also Read: Retail Sales Climb In February As Consumer Activity Picks Up, But Miss Expectations: ‘The Economy Is Slowing’
Evaluating Market Responses
The iShares U.S. Home Construction ETF ITB, an exchange-traded fund monitoring the collective performance of U.S. homebuilders, has observed a remarkable 78% uptick since the dawn of 2023. However, a recent downturn of 1.6% has marked its trajectory since the onset of March.
Among the prominent constituents within the ITB index, D.R. Horton Inc DHE, the nation’s preeminent homebuilder, is grappling with a stagnant performance year-over-year following subdued quarterly results. In stark contrast, Lennar Corporation LEN stands 5% higher year-to-date, despite a sharp descent last week subsequent to missing revenue projections.
Jeffrey Roach, the chief economist at LPL Financial, emphasized, “Informed investors should note that the demand for new homes remains steady amidst towering borrowing costs. Those astute to the nuances of housing-related sectors have been duly rewarded by the markets.”
Now Read: Warren Buffett’s Bet On Lennar: Will The Homebuilding Giant’s Earnings Report Validate The Investment?
Image created using artificial intelligence with Midjourney.
