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Although housing starts posted an alarming drop in February, this was almost certainly due to the harsh winter weather last month that followed a relatively mild and unseasonably warm January. Evidence of this is given by the regional breakdown of the data. The Northeast and Midwest regions, which were impacted by the winter weather conditions, saw the steepest declines, while the South and West regions, where weather was not as much of a factor, actually experienced year-over-year increases in housing starts. However, even on a seasonally-adjusted basis, starts were still below expectations. Although last month's sharp decline was overwhelmingly weather-related rather than fundamentals-related, it will be important to keep an eye on whether or not starts will trend towards lower expectations in the coming months.

- Kevin Gillen Ph.D., Chief Economist at Meyers Research

Bad Weather Causes Housing Starts to Plunge

Housing starts plunged in February due to poor weather which brought residential construction activity to a standstill in many regions of the country.  Total housing starts dropped 17.0% to a seasonally adjusted annual rate of 897,000 units in February from an upwardly revised figure of 1,081,000 units in January. Housing starts are down 3.3% from this time last year when bad weather also hurt building activity. This is the lowest housing starts have been since January of last year but activity should rebound next month as the weather improves and the economy remains strong. Both single- and multi-family housing starts experienced steep declines due to the weather. In February, single-family housing starts fell 14.9% to a seasonally adjusted annual rate of 593,000 units. Multi-family housing starts of 5+ unit structures plunged 21.6% to a seasonally adjusted annual rate of 297,000 units. This is the lowest level of activity for both the single- and multi-family (5+ units) segments since June of last year.

Permits Rebound Ahead of the Spring Homebuying Season

Permits picked up in February as builders gear up for the busier spring and summer months ahead.  Total building permit activity in the U.S. increased 3.0% in February to a seasonally adjusted annual rate of 1,092,000 units. Permits are up 7.7% from this time last year which is consistent with the upward trend over the past year. This is the eighth consecutive month that total permit activity has come in above the 1 million unit annual pace. Demand for rentals across the U.S. remains high. A surge in multi-family activity was the primary reason for February's increase. Single-family building permits fell 6.2% from the previous month to a seasonally adjusted annual rate of 620,000 units while multi-family activity (5+ units) jumped 19.9% to 445,000 units. Single-family permit activity is currently at its lowest levels since May of last year while multi-family building activity is the busiest it has been since April of last year. The slowdown in single-family permit activity is a concern since it is a better indicator of overall housing market and economic health than its multi-family counterpart.

Builder Confidence Continues to Wane

Builder confidence continued to fade in March although the overall mood remains slightly swayed to the positive side.  The National Association of Homebuilders' Housing Market Index in March declined two points to a reading of 53 from a February reading of 55. This is the third straight month that the index has declined; it has not posted a monthly gain since November. However, it is the ninth consecutive month that the index has recorded a reading over 50 which shows that more builders have a positive outlook on the housing market. Poor winter weather across the country can again be blamed for less optimism amongst homebuilders last month. Mortgage rates have also been steadily rising as the economy improves which may have weakened sentiment. Builders, however, are looking forward to a strong homebuying season this year due to more favorable lending conditions, strong job growth and improved affordability.


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