February Housing Starts Falter

Housing starts largely gave back in February what was gained in January, but analysts saw improvement beyond the headline.

HUD and the Census Bureau on Friday reported privately owned housing starts in February fell to a seasonally adjusted annual rate of 1.236 million, 7 percent below the revised January estimate of 1.329 million and 4.0 percent lower than a year ago (1.288 million). The drop practically negated an 8 percent increase in starts in January.

Nearly all of the February drop took place in multifamily. Single-family housing starts rose by nearly 3 percent to 902,000 from January’s revised 877,000. The February rate for units in buildings with five units or more fell by 28 percent to 317,000 from 440,000 reported in January.

Regionally, starts fell everywhere except the Midwest, where they improved by 7.6 percent in February to 155,000 units, seasonally adjusted, from January’s 144,000, but fell by nearly 15 percent from a year ago. In the South, starts fell by 7.3 percent to 633,000 units in February from 683,000 units in January and dropped by nearly 4 percent from a year ago.

In the West, starts fell by nearly 13 percent in February to 339,000 units from 389,000 units in January but improved by 0.6 percent from a year ago. In the Northeast, starts fell by 3.5 percent in February to 109,000 units from 113,000 units in January and fell by nearly 2 percent from a year ago.

Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif., said the improvement in single-family starts bodes well for the spring home buying season.

“Housing starts are the source of future completions, and while builders broke ground on fewer homes overall this month compared with February 2017, it was mostly due to a drop in multi-family housing starts,” Fleming said. “Changes in the pace of housing starts tells us a lot about the future supply of homes available in the housing market. In addition, increase in housing starts can lead to increases in construction employment, which benefits the overall economy. Once the home is completed and sold, it generates revenue for the home builder and other related industries, and is added to the housing stock.

Mark Vitner, senior economist with Wells Fargo Securities, said despite the overall drop, new home construction continues to gradually build momentum.

“The winter months are normally a slow period for new home construction, but unseasonably mild winter weather and the lack of new homes available for sale have allowed for more construction to get underway, particularly in the supply-starved West and South,” Vitner said. “Through the first two months of this year, single-family starts are running 7.8 percent ahead of their year ago pace.”

Vitner added the sluggish pace of the housing recovery has been noted repeatedly over the past few years. “New home construction has been held back by shortages of buildable lots and skilled construction workers,” he said. “Higher building material prices in the wake of the resumption of tariffs on imports of Canadian softwood lumber and rising prices for petroleum-based products have also made it harder to build entry-level homes. The tide appears to be turning somewhat, with completions of single-family homes trending higher over the past year. Profits margins are still being crimped, however, and affordability is being constrained further by higher mortgage rates.”

The report said privately owned housing units authorized by building permits in February fell to a seasonally adjusted annual rate of 1.298 million, down by 5.7 percent from the revised January rate of 1.377 million, but 6.5 percent higher than a year ago (1.219 million). Single-family authorizations rose by 0.6 percent to 872,000; authorizations of units in buildings with five units or more fell to 385,000 in February, down by nearly 15 percent from January (452,000) but up by 13.2 percent from a year ago.

The report said privately owned housing completions in February rose by nearly 8 percent to 1.319 million from January’s revised 1.224 million and 13.6 percent higher than a year ago (1.161 million). Single-family housing completions rose by 3 percent to 895,000 from January’s revised 869,000. The February rate for units in buildings with five units or more rose to 418,000, up by 21.5 percent from January’s 344,000 and an improvement of 9.4 percent from a year ago.