The Census Bureau and the U.S. Department of Housing and Urban Development said that residential construction activity plummeted in February, falling 17.0 percent. New housing starts declined from an annualized 1,081,000 in January to 897,000 in February. This was the slowest pace of housing starts since January 2014. Perhaps coincidently, that month was marred by a number of winter storms which were significant enough to lessen GDP and overall economic activity. This most recent report likely suffered from the same thing, particularly with major snowstorms in the Northeast and the Midwest, with starts in those two regions down 56.5 percent and 37.0 percent in February, respectively. Starts in the West were also weak, down 18.2 percent for the month.
The February data reflect declines in both single-family (down from 697,000 to 593,000) and multi-family (down from 384,000 to 304,000) housing starts. Single-family starts had averaged 678,833 in the second half of 2014, and February’s level represents the lowest level in eight months. Likewise, multi-family starts, which are often quite volatile from month to month, averaged 368,333 from July to December of last year, illustrating the softness of the market in February. As such, these data are a major disappointment, particularly for a housing market that had started to stabilize and improve mid-year in 2014.
On the other hand, the housing permits data provide a level of comfort, and they seem to indicate that the sharp reduction in housing starts in February might be temporary. Housing permits increased from an annualized 1,060,000 in January to 1,092,000 in February. This is just a little shy of the recent peak of 1,102,000 observed in October, and it provides a hint of where new residential construction data should be headed in the coming months. With that said, permitting data were mixed. Single-family housing permits (down from 661,000 to 620,000) were lower for the second straight month; whereas, the boost in the headline figure came mostly from higher multi-family activity (up from 399,000 to 472,000). For the market to stabilize and start to grow again, we would need to see better single-family permits and starts.
Along those lines, the National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index dropped from 55 in February to 53 in March. It was the third consecutive drop in confidence among home builders, down from 58 in December. The largest declines were seen in the Northeast and the West, with a rebound in assessments in the Midwest. The index has exceeded 50 for nine straight months, the level at which more builders are positive than negative in their view of current conditions.
Indeed, home builders remain upbeat about the next six months, with the index of expected single-family sales unchanged at 59. This indicates relatively strong growth in sales moving forward, even as the traffic of potential buyers dipped somewhat this month. NAHB Chief Economist David Crowe added, “…we are expecting solid gains in the housing market this year, buoyed by sustained job growth, low mortgage interest rates and pent-up demand.”
Chad Moutray is the chief economist, National Association of Manufacturers.
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