Housing Starts Decline 7.8% as Interest Rates, Inventories Rise

U.S. builders started work on the fewest houses in a year in March as rising mortgage rates and record inventories of unsold homes discouraged new projects.

Housing starts declined 7.8%, more than economists had expected, to an annual rate of 1.96 million, the Commerce Department said Tuesday.

A measure of producer prices showed the smallest increase since November, according to a report from the Labor Department.

The figures suggested that the Federal Reserve’s strategy of raising interest rates in quarter-point intervals is guiding the economy to a slower pace of growth and keeping inflation under control.

Wholesale prices rose 0.5% in March as costs of crude oil and gasoline approached record highs, the Labor Department reported. Prices excluding energy and food rose 0.1%, the slowest pace in four months. Price increases were contained even as commodity costs climbed.

Economists had expected housing starts to fall to an annual rate of 2.03 million in March from the originally reported 2.12 million a month earlier, according to a Bloomberg News survey.

The drop in construction last month offset earlier gains this year when unseasonably warm weather benefited builders, economists said.

Starts averaged 2.139 million a month in the first three months of the year, the most since the second quarter of 1973.

Building permits, a sign of future construction, dropped to an annual rate of 2.06 million. They were forecast to fall to a 2.1-million pace from 2.15 million.

Starts of single-family homes fell 12% last month to a 1.59-million-unit rate.

Builders began work on multifamily units such as apartments and town houses at an annual rate of 369,000, an increase of 16%.

Starts dropped in all regions of the country. They decreased 16% in the West, 8.2% in the Midwest, 4.8% in the South and 0.5% in the Northeast.

The number of homes under construction fell 0.8% last month to a 1.42-million pace from 1.43 million.

Housing completions increased 7.8% to a 2.22-million-unit annual rate, the most since June 1973.

The number of housing units authorized, but not started, rose 9.5% to 235,600.