Housing starts fell in February as interest rates and timber costs rose.

Housing starts declined in February due to rising interest rates, rising timber costs and harsh weather affecting the center of the country, economists said on Wednesday.

John Pataky | Photo credit: TIAA Bank

Privately owned home construction starts fell 10.3 percent month-over-month and 9.3 percent year-over-year to a seasonally adjusted annual rate of 1.4 million, according to the US Department of Commerce. In particular, single family beginnings fell by 8.5 percent compared to January.

“Housing starts underperformed this month with reports of rising interest rates, which recently hit their highest level since July and cooled the market slightly,” said John Pataky, executive vice president of TIAA Bank, in a statement. “Previously, these extremely low prices were cheap to consumers, driving them past the perceived drawbacks of the market, including more barriers to entry and a critically underserved list of homes for sale that resulted in higher prices. “

Permitted construction work also fell sharply from January to February, falling 10.8 percent. This is a potentially worrying sign of an out of stock real estate market. However, the number of approved permits was still well above the previous year’s level. The seasonally adjusted annual rate rose by 17 percent.

“If interest rates continue to rise with the post-COVID recovery, the real estate market must be heroically used to sustain growth,” added Pataky.

Completion of privately owned apartments increased 2.9 percent compared to January 2021 and 5 percent compared to February 2020.

Odeta Kushi, the deputy chief economist at First American, said on Twitter that there are still several headwinds on the supply side in addition to rising interest rates, which are weighing on the out-of-inventory real estate market.

“The strong demographic demand for living space offers building owners the opportunity to break new ground in residential construction and to contribute to solving the existing crisis,” said Kushi. “The supply-side headwinds remain, however: high material costs (lumber), lack of affordable land and costly regulations.”

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