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New-Home Construction Records Biggest Monthly Decline Since March 1984, as Coronavirus Pandemic Takes a Toll

The numbers: Builders started construction on new homes in the U.S. at a pace of 1.22 million in March, the Commerce Department said Thursday. This represented a 22% decrease from a revised 1.56 million in February, but was 1.4% higher than a year ago.

It’s the biggest decline since March 1984.

Permitting activity, however, slowed down less drastically. Building permits for privately-owned housing units were authorized at a seasonally-adjusted rate of 1.35 million. That was 6.8% below the revised pace of 1.45 million set in February, but 5% above last year’s rate.

Economists polled by MarketWatch had projected housing starts to occur at a 1.29 million pace and building permits to occur at a rate of 1.25 million.

What happened: Housing starts and permitting both fell to the slowest pace since last July.

The decrease in permitting activity was driven entirely by a 12% drop in permits issued for single-family units. Permits for multifamily buildings, duplexes, triplexes and quadplexes increased between February and March.

Meanwhile, the slowdown in new construction projects was led by multifamily buildings. Multifamily starts plummeted by more than 32%, while single-family starts only decreased 17.5%.

Regionally, the Northeast experienced the most pronounced decrease in overall new-home construction with a 42.5% decline, almost double what was seen in the South, West and Midwest. However, the Midwest noted the largest decline in single-family starts, while new construction of one-family homes actually increased in the West.

The big picture: This report is indicative of what can be expected in terms of housing data in future months as a result of the slowdown in economic activity caused by the COVID-19 pandemic. However, coronavirus only started to become a major factor in the latter half of March.

As a result, the housing sector is poised to see coronavirus hit reflected in the data in an even bigger way in the months ahead. “Starts could well sink to half this level (0.6 million) in April, as the [National Association of Home Builders] housing market index plunged by a record 42 points, four times more than the next worst month,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note Thursday.

This marks a major shift from the beginning of the year when record-breaking permitting activity suggested a building frenzy for later in 2020. Overall, housing starts are now expected to dip 9.3% this year, according to the latest forecast from Fannie Mae, even though the housing market has seen a major dearth in the supply of homes.

What they’re saying: “Housing is not safe in the current situation, as job losses mount and prospects for homeownership dim,” Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote Thursday morning.

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