Home under construction on a building site Home under construction on a building site. (Photo: Shutterstock)

U.S. new-home construction unexpectedly fell in March, decelerating to the slowest pace since May 2017 and suggesting builders remain wary even as lower mortgage rates and steady wage gains offer support to consumers.

Residential starts fell 0.3% to a 1.139 million annualized rate after a downwardly revised 1.142 million pace in the prior month, according to government figures released Friday. Permits, a proxy for future construction, slumped 1.7% to a 1.27 million rate. Both figures missed estimates.

Key Insights

The drop signals developers continue to struggle to build affordable properties amid rising labor and materials costs. Still, there have been signs of stabilization in real estate, with mortgage rates down from last year and the Federal Reserve signaling that it’s likely to keep borrowing costs on hold this year. Data next week may add to signs of a cooling-yet-stable housing market in March. Existing home sales — which account for about 90 percent of the market — are projected to ease from February’s jump, the biggest since 2015, while new home sales are forecast to pull back from the best pace in almost a year.

Three of four regions posted declines, led by a 17.6% drop in the Midwest. Starts in the West rose 31.4%. The results may reflect some influence from harsh weather, particularly heavy snowfall in the Northeast and record flooding along the Mississippi and Missouri rivers.

Single-family starts fell 0.4%, with permits down 1.1%. Starts for multifamily homes, a category that tends to be volatile and includes apartment buildings and condominiums, was unchanged at a 354,000 pace as permits fell 2.7%. About 197,000 homes were authorized but not yet started, the same level as the prior two months and a signal of steady supply for the months ahead.

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