February Housing Starts Down Nearly 9%

Privately owned housing starts in February fell by nearly 9 percent, as bad weather and scarce resources brought an end to the winter housing market season.

HUD and the Census Bureau reported February housing starts at a seasonally adjusted annual rate of 1.162 million, 8.7 percent lower than the revised January estimate of 1.273 percent and nearly 10 percent lower than a year ago (1.290 million).

HUD/Census reported single‐family housing starts at 805,000 in February, 17 percent lower than January’s revised 970,000 and 10.6 percent lower than a year ago The February rate for units in buildings with five units or more improved to 352,000 in February from 285,000 units in January but fell by 5.4 percent from a year ago.

Regionally, only the Midwest saw any improvement. In the South, starts fell by nearly 7 percent to 663,000 units, seasonally annually adjusted, in February from 711,000 in January but improved by nearly 8 percent from a year ago. In the West, starts fell by nearly 19 percent to 240,000 units in February from 296,000 in January and fell by 38.3 percent from a year ago.

In the Midwest, starts jumped by nearly 27 percent in February to 161,000 units, seasonally annually adjusted, from 127,000 units in January and improved by 4.5 percent from a year ago. In the Northeast, starts plunged by nearly 30 percent to 98,000 units in February from 139,000 units in January and fell by nearly 28 percent from a year ago.

“Residential construction had dipped towards the end of 2018, and the January surge was thought to be a possible sign of a bounce-back,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Unfortunately, we are back down to November and December levels.”

Kan noted on a year-over-year basis, single-family starts have dropped in four of the past five months. “Single-family permits remained flat over the month, but those too have shown several months of annualized declines,” he said. “The weakness in this month’s data may be a sign that builders continue to face problems with labor shortages and lot availability, even as we expect demand to pick up going into the spring buying season, fueled by lower mortgage rates.”

“One month does not make a trend, and while building permits and housing starts fell this month, falling mortgage rates should bring more buyers into the market this spring, and spur builders to ramp up construction,” said Odeta Kushi, Deputy Chief Economist with First American Financial Corp., Santa Ana, Calif. “Home buyers looking for more housing supply to choose from can take heart, as completions, which is additional new net supply added to the housing stock, increased 1.1 percent compared with a year ago.”

Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., noted all of the swing in February housing starts occurred in single-family starts, which are more susceptible to weather.

“Too much should not be made of February’s 8.7% drop in housing starts,” Vitner said. “The decline was almost entirely due to swings in the weather. Single-family starts had surged 19.2% in January. That month saw unseasonably mild weather across much of the country, where construction had been previously held back by incessant rains and natural disasters. With the skies clearing and temperatures rising, we saw single-family starts surge. The improvement was also evident in the employment and construction spending data. February saw the return of more typical winter weather.”

The report said privately owned housing units authorized by building permits in February fell to a seasonally adjusted annual rate of 1.296 million, 1.6 percent below the revised January rate of 1.317 million and 2 percent lower than a year ago (1.323 million). Single‐family authorizations in February were unchanged in February at 821,000; authorizations of units in buildings with five units or more fell to 439,000 in February, nearly 3 percent lower than January but 12.3 percent higher than a year ago.

HUD/Census reported privately owned housing completions in February rose to a seasonally adjusted annual rate of 1.303 million, 4.5 percent higher than the revised January estimate of `.247 million and 1.1 percent higher than a year ago (1.289 million). Single‐family housing completions in February fell to 816,000; 10.0 percent below the revised January rate of 907,000. The February rate for units in buildings with five units or more jumped to 473,000, 40.4 percent higher than January and 18.3 percent higher than a year ago.

Vitner said even with the recent slide in interest rates, which reflects weakening economic conditions, a rebound in housing demand will not take place until the “storm clouds” emanating from slower global economic growth clear later this year.

“Homebuilder confidence has rebounded in recent months but has not returned to its previous highs,” Vitner said. “Moreover, many builders discounted homes heavily late last year to move inventories and are unlikely to aggressively get ahead of demand after just a few months of lower mortgage rates.”