New-home construction rose by more than forecast in March on a rebound in multifamily starts, giving a boost to first-quarter economic growth, government figures showed Tuesday.

Residential starts rose 1.9% to a 1.32 million annualized rate (the estimate was 1.27 million) after an upwardly revised 1.3 million pace in the prior month. Multifamily home starts rose 14.4%; single-family fell 3.7%. Permits, a proxy for future construction of all types of homes, rose 2.5% to a 1.35 million rate (the estimate was 1.32 million) after a 1.32 million pace.

The results show a tight job market, improved finances and consumers' elevated confidence to purchase big-ticket items are supporting construction. That means homebuilding probably contributed to economic growth for the second consecutive quarter.

Home starts rise

The strength in March was concentrated in multifamily construction such as apartment buildings. That category tends to be volatile; March's advance in starts followed a 10.2% drop in the prior month. Permits for single-family homes were a weak spot, dropping 5.5%, the biggest decline in seven years, to the lowest level since September.

While demand remains solid, a shortage of workers, rising costs for materials and a scarcity of ready-to-build lots are limiting gains in building activity. With borrowing costs rising, affordability is also becoming a hurdle, as property values outpace potential buyers’ income growth.

Sentiment among homebuilders fell in April for a fourth straight month amid limited land availability and higher lumber prices, according to data Monday from the National Association of Home Builders/Wells Fargo.

Nevertheless, sentiment remains elevated, and in an indication that builders will remain busy in coming months, the number of homes under construction at the end of March reached 1.125 million, the highest level since July 2007. Single-family dwellings under construction inched up to 504,000, the most since mid-2008.

Single-family home starts fell to an 867,000 rate from 900,000 the prior month. Groundbreaking on multifamily homes rose to an annual rate of 452,000. Gains in housing starts were led by Midwest, with a 22.4% advance, the Northeast rose 0.8%, while the South and West dipped.

The report shows a wide margin of error, with a 90% chance that the March housing-starts figure was between a 10.5% drop and a 14.3% gain. The report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

Bloomberg News