WASHINGTON — U.S. homebuilders opened the spring buying season in March at a slower pace than last year, a warning that recent hiring gains have failed to translate into a stronger real estate market.
Construction firms broke ground at a seasonally adjusted annual rate of 926,000 homes last month, a 2.5 percent decline from the pace in March 2014, the Commerce Department said Thursday.
Steady job growth, low mortgage rates and cheaper gasoline have given consumers more flexibility. But the improved economy has yet to significantly boost sales and construction.
Still, the warmer weather helped after a brutal winter. March housing starts rebounded 2 percent from this past February's rate of 908,000 homes. Builders broke ground on more homes in the Northeast and Midwest, two areas hammered by snow storms and freezing temperatures in previous months. But the pace of construction slipped last month for the South and West.
March traditionally marks the start of the spring home buying season, when more people flood into the market and sales increase. But the relatively modest pace of new construction and few homes being listed for sale have kept inventories tight, limiting the potential for sales to rise. Homebuilders have increasingly focused on two key markets: wealthier buyers and apartment complexes, because increasingly expensive houses have priced many out of the market and led them to rent.
The relatively sluggish pace of house construction reflects the aftermath of the 2008 financial crisis and housing bust, when mortgage defaults skyrocketed and home prices cratered.
Approved building permits fell from February, sliding 2.9 percent in March to an annual rate of 1.04 million. The entire decline came from the volatile multi-family category that includes apartment construction.
Still, builders have increasingly favored constructing rental properties. They broke ground on 341,700 multi-family structures last year, a 16 percent increase compared with 2013, according to the Commerce Department.
This shift toward apartment buildings reflects both the fragile six-year recovery and the growing preference among college-educated millennials for city living, according to Michelle Meyer, an economist at Bank of America Merrill Lynch.
"When economic times are tough, people tend to downsize and move closer to work in order to minimize travel expenses," Meyer said in a recent client note. "There is also a greater tendency to rent given the financial burden of owning and challenges accessing credit."
But many economists expect strong job growth and relatively low mortgage rates to bolster the housing sector this year.
The National Association of Home Builders/Wells Fargo builder sentiment index released Wednesday rose four points to 56 this month, the highest level since January. Readings above 50 indicate more builders view sales conditions as good, rather than poor. Expected sales and buyer traffic both improved in April, a sign that builders expect the recent job gains to deliver more buyers.
Over the past 12 months, employers have hired an additional 3.1 million workers, sending the unemployment rate tumbling from 6.6 percent to 5.5 percent, according to the Labor Department. That has increased the number of potential homebuyers and renters.
At the same time, average 30-year, fixed mortgage rates have stayed near recent lows at 3.66 percent, according to the mortgage firm Freddie Mac. That is down from a 52-week high of 4.33 percent. Cheaper borrowing costs make easier for homebuyers to afford their monthly housing payments.