All is not lost in housing starts free-fall, economists say

Starts are only 15%, but volatility is worrying

The report that privately owned housing starts in February plummeted 17% sent ripples of alarm through the housing industry, and while it’s bad, many economists say it’s no reason to panic.

Single-family housing starts in February were at a rate of 593,000; this is 14.9% below the revised January figure of 697,000. Multi-family starts are the lowest since June 2014.

“Housing clearly remains under pressure. Increased volatility month to month has left permits and starts little changed from levels reached 12-24 months ago,” said Lindsey Piegza, chief economist for Sterne Agee. “With consumers struggling amid minimal wage growth, housing is unlikely to be a sizable contribution to headline growth in the near term.

“Nevertheless, the disappointment in this morning's report only further exacerbates the downward trend in the economic data as of late. Needless to say, the Fed has plenty to discuss at this week's policy meeting,” she said.

Ed Stansfield, chief property economist at Capital Economics, said it was more a weather issue, and that he expects a rebound soon based on market fundamentals.

“The collapse in housing starts in February was largely a result of the unseasonably severe winter weather affecting the Northeast. With the wider economy growing strongly and credit conditions loosening, we expect starts to rebound before long,” Stansfield says. “Unusually severe winter weather in large parts of the country clearly played a significant role by preventing homebuilders from breaking ground. Some cities in the Northeast, such as Boston, suffered their heaviest snowfall on record in February. As a result, starts in this region plummeted by 56.5% month over month – the largest monthly fall on record.”

He does admit that even accounting for the weather, the drop was sizable. Yet he says that there is little to suggest that February’s slump was the start of a weaker trend.

“After all, although the NAHB index of homebuilder confidence dropped to an eight-month low in March, at 53, the index shows that most homebuilders still see conditions as favorable and is consistent with an increase in housing starts,” Stansfield said. “The rapidly improving labor market, continued loosening in mortgage credit conditions and an upturn in household formation…should all contribute to housing starts rising past the 1.2 million mark this year.”

Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm, tweeted his own take.  


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