New-home construction leapt last month to the highest level since before the financial crisis, driven by a big gain in the volatile multifamily-home segment.
Construction of homes with at least five units rose about 27% in March from a month earlier, to the highest level since January 2006, while single-family homes were down 4.8% on a monthly basis.
The government's figures for the multifamily sector tend to be volatile. But analysts see continued strength for the apartment market, especially as many families have damaged credit and are locked out from buying homes for several years.
"The processing of foreclosed and delinquent properties is transitioning many households away from homeownership and into rentership, which accounts for the relative strength of multi-family starts over single family starts," wrote Michael Gapen, an economist with Barclays Capital.
Analysts cautioned against being overly concerned about the decline in single-family construction, especially since the previous month's figures were the highest since May 2008. The data "do not alter the overall picture of single-family new construction activity, which continues to recover gradually," analysts at RBS Securities Inc. wrote in a note to clients.
Economists largely believe improvements in the housing market will be a bright spot for the tepid economic recovery this year. Investments in residential projects and home improvements have contributed to overall economic growth for seven consecutive quarters.
Overall housing starts rose 7% in March to a seasonally adjusted annual rate of 1.04 million, the Commerce Department said Tuesday. The figures were the strongest since June 2008. Economists surveyed by Dow Jones Newswires had forecast housing starts would rise 1.7% to a rate of 933,000. February's figures were revised sharply upward to a rate of 968,000.
Meanwhile, the number of new building permits, an indication of future construction, fell 3.9% to an annualized rate of 902,000 in March. That was below economists' estimates for a rate of 945,000.
Still, builders' ability to get construction loans and higher costs for building materials could slow construction in the coming months. On Monday, the National Association of Home Builders said its members' confidence fell in April for the third straight month and was at its lowest level since October.
The government data showed new home building rose in three out of our U.S. regions last month. Construction rose 10.9% in the South, 9.6% in the Midwest and 2.7% in the West, but fell 5.8% in the Northeast.
Actual housing starts, which are calculated without seasonal adjustments, increased to 85,800 in March from a upwardly revised 66,300 for the prior month. Lumber and commodities markets watch those numbers closely to gauge demand.