WASHINGTON, March 18 (Reuters) - U.S. single-family homebuilding rebounded sharply in February amid a thaw in winter weather, but rising construction costs from tariffs and labor shortages threaten the recovery.
Permits for future construction of single-family homes fell for a second straight month, the report from the Commerce Department showed on Tuesday. It reinforced a survey on Monday showing sentiment among homebuilders hitting a seven-month low in March amid worries about tariffs and worker shortages.
Mounting economic jitters because of tariffs and an unprecedented campaign by President Donald Trump's administration to shrink the federal government through mass firings of public workers and deep spending cuts are discouraging some potential home buyers, potentially undercutting the housing market.
"We don't expect the February pace of starts to be sustained as builders face higher building costs due to tariffs and labor shortages and as buyers become more cautious in a more uncertain economic environment," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Single-family housing starts, which account for the bulk of homebuilding, surged 11.4% to a seasonally adjusted annual rate of 1.108 million units last month, the Commerce Department's Census Bureau said. Data for January was revised to show homebuilding declining to a rate of 995,000 units instead of the previously reported pace of 993,000 units.
Single-family homebuilding soared in the Northeast and densely populated South as disruptions caused by frigid temperatures eased.
Housing starts also rose in the West, but plunged in the Midwest, likely dragged down by winter storms. Starts fell 2.3% on a year-over-year basis in February.
Trump this month imposed and later suspended a 25% tariff on most goods from Canada and Mexico, which would have pushed up U.S. duties on Canadian lumber to nearly 40%. But tariffs on Chinese goods were raised to 20% and levies on steel and aluminum went into effect this month.
The National Association of Home Builders/Wells Fargo Housing Market Index tumbled to a seven-month low in March, with builders saying they "continue to face elevated building material costs that are exacerbated by tariff issues," also noting "other supply-side challenges that include labor and lot shortages."
There have been anecdotes of workers not reporting for duty at construction sites for fear of deportation as the Trump administration cracks down on illegal immigration.
Undocumented immigrants account for 23% of construction labor, the Center for American Progress estimated in 2021.
Though the average rate on the popular 30-year fixed-rate mortgage has declined from 7% at the start of the year, the economic uncertainty is likely to keep prospective buyers on the sidelines. With new housing inventory at levels last seen in December 2007, builders might have no incentive to break new ground on single-family housing projects.
Permits for future construction of single-family housing fell 0.2% to a rate of 992,000 units in February.
U.S. stocks were trading lower. The dollar advanced against a basket of currencies. Yields on longer-dated U.S. Treasuries rose.
EYES ON FED
Federal Reserve officials meeting on Tuesday and Wednesday are expected to leave the U.S. central bank's benchmark overnight interest rate in the 4.25%-4.50% range, having reduced it by 100 basis points since September, and continue to assess the economic impact of the Trump administration's policies.Financial markets expect the Fed to resume lowering rates in June, after it paused its easing cycle in January. The policy rate was hiked by 5.25 percentage points in 2022 and 2023.
Starts for housing projects with five units or more increased 12.1% to a rate of 370,000 units. Overall housing starts jumped 11.2% to a rate of 1.501 million units, more than reversing January's decline. Economists polled by Reuters had forecast housing starts would rise to a rate of 1.380 million units.
Multi-family building permits fell 4.3% to a rate of 404,000 units. That contributed to lowering overall building permits by 1.2% to a pace of 1.456 million units last month.
The number of single-family houses approved for construction that were yet to be started dropped 4.8% to a rate of 139,000 units, the lowest level since June. The completions rate for that housing segment jumped 7.1% to a rate of 1.066 million units. The inventory of single-family housing under construction was unchanged at a rate of 640,000 units.
A separate report from the Labor Department's Bureau of Labor Statistics showed import prices increased 0.4% in February, matching January's gain. Import prices, which exclude tariffs, rose 2.0% in the 12 months through February, after advancing 1.8% in January.
Government data last week showed better-than-expected consumer and producer price readings in February, though there were firmer readings in the details that go into the calculation of the Personal Consumption Expenditures price indexes, the inflation measures tracked by the Federal Reserve for its 2% target.
Imported fuel prices increased 1.7% after surging 3.5% in January. Food prices were unchanged after climbing 0.2% in January.
Excluding fuels and food, import prices shot up 0.4% after being unchanged in January.
In the 12 months through February, core import prices rose 1.4%, reflecting earlier dollar strength against the currencies of the main U.S. trading partners. Prices of imported capital goods fell 0.2% after gaining 0.1% in January. Prices of imported automotive vehicles, parts and engines were unchanged.
The cost of imported consumer goods excluding automotives surged 0.4% after declining for two straight months.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao
