Household Formation Outpaces Home Construction

Americans are forming households at double the pace of housing starts for the past six months, says MarketWatch. It could be a sign that strong demand will continue despite new-home sales dropping and mortgage rates rising in February. Builders are facing supply chain and materials issues, but February’s winter weather greatly impacted the number of new-home starts as well. MarketWatch analysts projected new-home sales to occur at a seasonally-adjusted annual rate of 879,000, but February starts only reached 775,000. Despite dropping 18.2% since January, new-home construction remains 8.2% higher than February 2020.

What happened: New-home sales fell on a monthly basis across all parts of the country, led by a 37.5% decline in the Midwest. Compared to 2020, sales were up in the Midwest and South, but down in the West and Northeast.

Inventory rose to a 4.8-month supply. A six-month supply of homes is generally considered indicative of a balanced market. The median price of new homes for sale was $349,400, down roughly 1% from January.

The big picture: As with other economic data, the pace of new home sales was certainly affected by the extreme weather events that affected many parts of the country last month, including Texas. These effects were certainly temporary, but rising mortgage rates could create a broader, longer-lasting headwind for the housing market.

Nevertheless, analysts expect building activity to persist even as higher interest rates cause some buyers to become skittish about their ability to afford to buy a home.

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