Housing Starts Fell in February as Builders Remained Constrained

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Housing starts in February were at a seasonally adjusted annual rate of 1.162 million, a decrease of 8.7% compared with a revised January estimate of 1.273 million and 9.9% below the February 2018 rate of 1.290 million, according to estimates released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development.

Starts of single‐family homes were at a rate of 805,000, a decrease of 17.0% compared with a revised January figure of 970,000. Starts of multi-family properties (five units or more per building) were at an annual rate of about 352,000, an increase of 23.5% compared with January.

Regionally, 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. Starts posted a 26.8% increase in the Midwest.

Permit activity was also down compared with the previous month. Permits were at a seasonally adjusted annual rate of 1.296 million, a decrease of 1.6% compared with the revised January rate of 1.317 million and down 2.0% below the February 2018 rate of 1.323 million.

Permits for single‐family homes were at a rate of 821,000; flat compared with January. Permits for multifamily units were at an annual rate of 439,000, down 2.9% compared with 452,000 the previous month.

Regionally, permits rose 1.5% in the Northeast, 4.0% in the South and 1.1% in the Midwest. Permits fell 15% in the West.

Housing completions were at a seasonally adjusted annual rate of 1.303 million, an increase of 4.5% compared with the revised January estimate of 1.247 million and an increase of 1.1% compared with the February 2018 rate of 1.289 million.

Completions of single‐family units were at a rate of 816,000, a decrease of 10.0% compared with the revised January rate of 907,000. The completion rate for multifamily units was 473,000, an increase of 40.4% compared with 337,000 the previous month.

The drop in housing starts is disappointing for housing experts who had been expecting more new inventory to come online during the spring home buying season. With mortgage rates falling and the labor market in the best shape in more than 10 years, lack of inventory is currently regarded as the main factor holding back home sales.

Mark Fleming, chief economist for First American, points out that as long as home builders are facing labor shortages, rising materials costs and severe delays getting local approvals, the situation is not likely to improve.

“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,” Fleming says in a statement. “Regulation, a persistent labor shortage and rising building material costs are all contributing to an insufficient pace of housing starts.”

Despite the slowdown in housing starts, lower mortgage rates and moderating home price appreciation should help out with affordability this spring.

“One month does not make a trend, and while building permits and housing starts fell [in February], falling mortgage rates should bring more buyers into the market this spring, and spur builders to ramp up construction,” Fleming says.

Fleming adds that home buyers should “take heart, as completions, which is additional new net supply added to the housing stock, increased 1.1 percent compared with a year ago.”

Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at the National Association of Home Builders (NAHB), points out that housing starts surged in January, making the drop in February merely a correction of sorts, and not indicative of an overall trend.

“The overall lower starts numbers are somewhat deceiving given the revised single-family starts figure in January was at a post-recession high,” Nanayakkara-Skillington says in a statement. “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.”

Echoing Fleming, Greg Ugalde, chairman of NAHB, points out that home builders are facing “excessive regulations, a scarcity of buildable lots, persistent labor shortages and tariffs on lumber and other key building materials,” all of which “are having a negative effect on housing affordability.”

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