Housing Construction Slips in February: Permits and Starts Both Fall

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • The rate of housing permit filings in February FELL 5.7 percent to a seasonally adjusted annual rate (SAAR) of 1.298 million units;
  • The rate of permits for single-family home permits in February EDGED DOWN 0.6 percent to an SAAR of 872,000 units;
  • The rate of permits for multi-family homes FELL 14.0 percent in February to 426,000 units (SAAR);
  • The rate of all housing starts FELL 7.0 percent in February to an SAAR of 1.24 million;
  • Single-family starts ROSE 2.9 percent to an SAAR of 902,000 while multi-family starts DROPPED 26.1 percent to an SAAR of 334,000;
  • The rate of home completions in February INCREASED 7.8 percent from January with single-family completions IMPROVING 3.0 percent and multi-family homes INCREASING 19.4 percent

Trends:

  • The February report on housing permits would have been worse had it not been for downward revisions to January;
  • The seasonally adjusted annual rate of permits dropped below 1.3 million for the first time since September (five months);
  • The percentage decline in multi-family starts was the steepest in 15 months (November 2016);
  • Single-family homes accounted for 73 percent of all starts, the highest share since last August (six months);
  • Builders completed single-family homes at the SAAR of 869,000 in January compared with a sales pace of 595,000. The “gap” between completions and sales –276,000 more completions than sales is the second widest since June 2010 when there were 379,000 more completions than sales; last July the pace of completion exceeded the sales pace by 280,000

Data Source: Census Bureau and Department of Housing and Urban Development 

Image result for housing construction

Despite the largest month-month increase in construction jobs in 11 years, residential construction activity fell broadly in February. Of the 61,000 construction jobs added in February 25,000 were residential construction jobs, the largest month-month increase in over a year (January 2017 saw 26,000 new residential construction jobs.

But those jobs may be fleeting as home-building activity all but dried up in February. The silver lining in the cloud could be that inventories may drop leaving builders with fewer homes they must “carry.”

Indeed, the number of new homes for sale in February 301,000 (computing to a 6.1-month supply) was the most since March 2009 (311,000). Inventory is a two-edged sword as higher inventories offer prospective buyers more choice but at the same time can drain builder cash reserves

Adding to builder concerns, the Housing Market Index produced monthly by the National Association of Home Builders slipped for the third straight month at the beginning of March (though it remains at a relatively high 10) and was led down by the measure of “buyer traffic” families “kicking tires” as they consider buying.

But if those window shoppers don’t buy, 2018 could be rough year for builders.

Hear Mark Lieberman every Friday at 6:20 am on POTUS Morning Briefing, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

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