Housing Starts Post Healthy February Gain

Housing starts, buoyed by mild winter weather and strong consumer demand, rose by 3. Percent in February, HUD and the Census Bureau reported yesterday.

The report said privately owned housing starts in February came in at a seasonally adjusted annual rate of 1.288 million, 3.0 percent higher than January’s revised estimate of 1.251 million and 6.2 percent higher than a year ago (1.213 million). Single-family housing starts came in at 872,000, 6.5 percent higher than January (819,000). Multifamily units fell by 7.7 percent to 396,000 units in February from 429,000 in January but improved by 11.2 percent from a year ago.

Regionally, only the West saw improvement, with housing starts jumping by 35.7 percent in February to 323,000 units, seasonally adjusted, from 238,000 units in January. Starts in the West improved by 4.2 percent from a year ago.

Elsewhere, starts fell. In the South, starts decreased by 3.8 percent to 659,000 units, seasonally adjusted, from 685,000 units in January but improved by 7.7 percent from a year ago. In the Midwest starts fell by 4.6 percent to 187,000 units in February from 196,000 in January and fell by 11.4 percent from a year ago. In the Northeast, starts fell by nearly 10 percent to 199,000 units from 132,000 in January but improved by nearly 49 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, said momentum appears to be swinging away from apartment building and back to traditional single-family homes.

Milder weather across much of the country likely allowed for more work to begin this February relative to past winters, which likely bolstered the seasonally adjusted figures,” Vitner said. “That said, single-family starts have remained above the 800,000-unit threshold (annualized) for the past five months, and the latest figure marks the fastest pace for single-family starts since prior to the Great Recession.”

Vitner said single-family strength was foreshadowed by this week’s National Association of Home Builders Housing Market Index, which reached its highest level in 12 years in March. “The rise in builder confidence was driven by sizeable gains in sales and perspective buyer traffic, which is an encouraging sign for homebuilders,” he said.

Ralph McLaughlin, chief economist with Trulia, San Francisco, said home buyers should be pleased with the new construction numbers, as both permits and completions appeared strong in February as well.

“This means a healthy dose of new homes will be available this spring in an otherwise inventory-constrained market,” McLaughlin said. “While the short run looks good for the housing pipeline, we should pay attention to the fact that permits were down in February. Permits are important because they are the earliest signals of new supply in the next 6-12 months, so any sign they are falling is something to take note of.”

HUD/Census reported privately owned housing units authorized by building permits in February fell to 1.213 million, down by 6.2 percent from January’s revised 1.293 million, but 4.4 percent higher than a year ago. Single-family authorizations in February rose to 832,000; 3.1 percent higher than January (807,000). Multifamily permits fell by nearly 27 percent in February, to 334,000 units, from 457,000 units in January and fell by nearly 16 percent from a year ago.

The report said privately owned housing completions in February rose to 1.114 million, 5.4 percent higher than January (1.057 million) and 8.7 percent higher than a year ago. Single-family housing completions in February fell to 754,000, 6.5 percent from January (806,000). Multifamily completions rose by nearly 40 percent to 344,000 units in February from 247,000 units in January and rose by 26.5 percent from a year ago.

“While single-family construction now appears to be ramping up, apartment construction seems to be cooling a bit,” Vitner said. “Vacancy rates have edged up across the country as a slew of projects have been completed over the past few months. With rent increases slowing and capital becoming dearer, starts of projects with 5 units or more, which are mostly apartments, are expected to fall modestly this year.”