Housing starts down last month but followed a post-recession high

by Steve Randall27 Mar 2019

There was a decline in housing starts in February but behind the headline figures there were some optimistic signs.

Total starts were down 8.7% to a seasonally adjusted annual rate (SAAR) of 1.16 million units as the single-family sector dropped 17% to 805,000 while multifamily starts gained 17.8% to 357,000 according to figures from the US Housing and Urban Development and Commerce Department.

“The overall lower starts numbers are somewhat deceiving given the revised single-family starts figure in January was at a post-recession high,” said Danushka Nanayakkara-Skillington, AVP for Forecasting and Analysis at the National Association of Home Builders (NAHB). “Absent the surge last month, the drop in single-family production in February is not as huge as it appears. Still, builders continue to remain cautious due to affordability concerns, as illustrated by the flat permits data.”

Combined single-family and multifamily starts in February fell 29.5% in the Northeast, 18.9% in the West and 6.8% in the South; but posted a 26.8% increase in the Midwest.

Permit issuance was down 1.6% to 1.30 million units with single-family permits steady at 821,000, while multifamily permits fell 4.2% to 475,000.

Permits rose 1.5% in the Northeast, 4% in the South and 1.1% in the Midwest, but fell 15% in the West.

Mortgage rates should encourage buyers

While total starts were down, two mortgage industry economists said the housing market is set to be driven by lower 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 First American Deputy Chief Economist Odeta Kushi.

She added that completions increased 1.1% compared with a year ago, boosting choice for spring buyers. But she said there is another issue for housing supply.

“The average delay time between application and approval for a standard project in highly regulated communities is three times longer than in lightly regulated communities – regulation, a persistent labor shortage and rising building material costs are all contributing to an insufficient pace of housing starts.”

Concerns about economic slowdown

Meanwhile, LendingTree Chief Economist Tendayi Kapfidze said that falling mortgage rates are the biggest positive for the housing market right now but there are challenges.

“The Fed’s action last week added to near-term optimism for the housing market, but it appears rate declines since December are having a difficult time accelerating the housing market,” he said. “The inversion of the yield curve, which suggests an economic slowdown, could lead to a tightening of lending standards and reduce mortgage availability which would slow housing demand.”


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