The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts decline by 2,000 in February to an annualized 907,000 units. With that said, new residential construction data for January were revised higher, up from the original estimate of 880,000 to 909,000, making the decline less of a story than the upward revision. Indeed, it appears that the housing market is starting to stabilize and perhaps rebound, particularly when you look at housing permits numbers (see below).
Looking specifically at the starts figures, new single-family residential construction increased marginally in February, up from 581,000 to 583,000. This was still below both the recent peak of 713,000 observed in November and the average for single-family housing starts for 2013 of 621,083. At the same time, multi-family housing starts edged slightly lower, down from 328,000 to 324,000. This was above the 2013 average of 308,000 but below the five-year high of 388,000 seen in November.
This data perhaps reflect continued negative effects from weather. The largest declines in housing starts were in the Northeast, down from 120,000 in January to 75,000 in February. The other region with weaker starts data was the West, but the Midwest and South experienced more residential construction activity for the month.
Meanwhile, the housing permits data provide us with optimism that the sector has begun to improve. New residential construction permits rose from an annualized 945,000 in January to 1,018,000 in February, essentially back to the trend seen in November. Yet, our positivity is nuanced by the fact that the monthly gains in permitting stemmed from multi-family units (up from 346,000 to 430,000), with single-family permit activity still soft (down from 599,000 to 588,000). Nonetheless, this the fourth time in the past 12 months that total permits have exceeded one million, potentially boosting some confidence moving forward.
For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo increased from 46 in February to 47 in March. The HMI measured 58 in August, its highest level since November 2005 but has edged lower since then. In fact, this was the second month in a row that the HMI has been below 50, suggesting that more home builders were negative in their assessment of the market than were positive.
The NAHB attributes part of the current weakness among home builders on the weather, but there were other factors cited, as well. David Crowe, NAHB’s chief economist, said that these other factors “include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”
The index for expected single-family sales over the next six months has fallen from 62 in December to 54 in February to 53 in March. This drop has been disappointing, and yet, putting a positive spin on it, home builders continue to be more positive than negative (with an index reading over 50).
Chad Moutray is the chief economist, National Association of Manufacturers.