New-home construction continued its upward trend in March, rising 3.9% year-over-year to a seasonally adjusted annual rate of 1.79 million units, the U.S. Census Bureau reported on Tuesday.
The move means that U.S. homebuilders are now producing more units for sale than they have in the past 16 years, but homebuyers might not want to celebrate just yet. Housing market experts say the most recent data isn’t as rosy as it may appear.
While new-home construction is up 10% from last year’s pace through the first quarter, the rise is unlikely to help struggling homebuyers—especially those looking to buy a single-family home.
After all, the jump in new-home construction was largely fueled by a rise in multifamily units. The number of new construction projects started with five units or more jumped a whopping 28.1% in March compared to last year, while single-family projects actually declined 4.4% over the same period, Census Bureau data shows.
Single-family building permits, which are seen as an indicator of the future pace of residential construction, also saw a 4.8% decline last month.
Builders appear to be shifting from a single-family focus to multifamily production as mortgage rates rise and buyers are priced out of single-family offerings, according to the chief economist for the National Association of Homebuilders, Robert Dietz.
“Our builder surveys show that confidence levels in the single-family market have declined for four straight months as affordability conditions continue to worsen,” Dietz said in a statement on Tuesday. “This is a sign that single-family production will face challenges moving forward.”
Soaring mortgage rates, rising home prices, and historically low inventory have put single-family homebuyers in a tough spot lately, but builders are struggling as well. With inflation touching highs not seen in four decades and supply-chain issues proving to be persistent, rising construction costs have many homebuilders cutting back on production.
“Policymakers must address building supply-chain disruptions to help builders bring down construction costs and increase production to meet market demand,” Jerry Konter, a homebuilder and developer from Savannah, told the National Association of Home Builders (NAHB) this week.
That’s not great news for homebuyers, as housing inventory is likely to remain below pre-pandemic levels, leaving single-family options limited.
On top of that, the median price of an existing home sold in the U.S jumped to $375,300 in March. That’s a 15% increase compared to a year ago, the National Association of Realtors revealed on Wednesday. And at the same time, mortgage rates are at their highest level in over a decade, with the average 30-year fixed rate hitting 5.2% last week.
At those levels, the typical American household would have to spend 31% of their monthly income to make a mortgage payment on the average U.S. home, Black Knight, a mortgage technology and data provider, told Fortune earlier this week. That’s a mortgage payment-to-income ratio that hasn’t been seen since September 2007.
There are signs this month that home prices are beginning to cool, however, which could mean some relief for homebuyers. Redfin reported that 12% of the homes listed on its site saw price cuts in the week ending April 9, marking the biggest one-month spike in price cuts since 2015.
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.