Residential Construction Activity Slips in February

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Home building activity, measured by housing permits and starts SLIPPED in February, as both starts and permits fell;
  • The seasonally adjusted annual rate of permits DIPPED 1.6 percent to a seasonally adjusted annual rate of 1.296 million; all the decline came in multi-family (about 37 percent of the total) which fell 4.3 percent;
  • The pace of starts FELL 8.7 percent or 111,000 to 1.162 million. Single-family starts DROPPED 17.0 percent or 165,000 while the rate of multi-family starts IMPROVED 54,000 or 17.8 percent;
  • The rate of total housing completions ROSE 56,000 or 4.5 percent. Single-family completions DROPPED 91,000 or 10 percent, while the pace multi-family completion ROSE 147,000 or 43.2 percent.

Trends:

  • The pace of new housing permits fell to its lowest level since October;
  • Year-year, the rate of new single-family permits is down for five straight months;
  • The rate of new single-family starts dropped to its lowest level since June 2017;
  • Total starts fell to the lowest level since May 2017.

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

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Housing – most notably home building — continues to struggle as the Census Bureau reported a further slippage in building permits and starts in February.

At the same time, in what might be good news, housing completions declined which means inventories may not swell.

Nonetheless, the slowdown in new home sales (with a couple of month-month exceptions) has not been due to lack of inventory. At the last report fo new home sales, the Census Bureau-HUD said the months’ supply was 6.6, second highest in the last seven years, exceeded only by the 7.2 month supply last October.

In January, completions (9007,000) exceeded new home sales by 300,000 – the second widest gap since December 2008.

Home sales continue to struggle against declining interest by younger buyers who find themselves challenged by student debt burdens. Indeed it is somewhat surprising the real estate industry hasn’t stepped in to offer assistance.

Mortgage interest rates, according to Freddie Mac, have been ticking down and with the recent decision by the Federal Reserve Open Market Committee to hold the target Fed Funds rate, mortgage rates are unlikely to go up anytime soon. Sometimes the fear of higher mortgage rates spurs sales as buyers grow want to close a deal before rates go higher. Not the case now.

The moribund permits and starts data raise questions about why the National Association of Home Builder’ Housing Market Index has remained at relatively high levels  — 62 out of 100 at the last reading.

The index, a measure of builder confidence, while up from 58 at year end, is down from 70 a year ago. And, construction sector jobs – for residential construction workers – fell 11,000 in March, the largest month-month drop since October 2010.

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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