The 5.2% increase in February’s housing starts was better than the anticipated 4.6% gain. On an annual basis, the volatile starts have shot up to 30.9% versus a year ago, following just 3.7% in January. It should be noted, however, that this year has been particularly mild compared to 2015 (and 2014), which suffered particularly severe winter storms. The last-three-months’ starts have risen by 0.1% following a 2.0% decline in January. The increase in total starts was due to strength in both multifamily homes, which rose by 2.4% after an 8.3% decrease, and single-family starts, which rose by 7.2% following a 0.8% rise. Multifamily starts are now 16.8% higher than a year ago, while single-family starts are 37.0% higher than last year. Starts in February were still solidly above the 1 million mark, at 1,178,000. Since 1947, the median monthly reading in housing starts has been 1.46 million. Meanwhile, building permits fell by 3.1%, to 1,167,000—6.3% higher than 12 months earlier; they had been expected to fall by 0.2% in the month.
Regionally, the pattern of housing starts activity again shows some incredibly marked divergences: starts collapsed by 51.3% in the Northeast, though rose by 26.1% in the West, 19.9% in the Midwest, and 7.1% in the South.
According to the latest NAHB homebuilders’ survey for March, building activity was unchanged in the month. The sentiment index remained at 58, after 61 in January (50 is the dividing line between viewing conditions as good or poor). The NAHB stated: “Confidence levels are hovering above the 50-point mid-range, indicating that the single-family market continues to make slow but steady progress.” “However, builders continue to report problems regarding a shortage of lots and labor.” “While builder sentiment has been relatively flat for the last few months, the March HMI reading correlates with NAHB’s forecast of a steady firming of the single-family sector in 2016.” “Solid job growth, low mortgage rates and improving mortgage availability will help keep the housing market on a gradual upward trajectory in the coming months.”
This strength in February is certainly encouraging, as it suggests that consumers are still willing to extend themselves and take on new mortgages and new homes. Mortgage applications continue to be exceptionally strong, despite the introduction several months ago of the new qualified mortgage rules for borrowers. The strong employment situation is playing a key role here, as are the moderate but nevertheless positive increases in household income. A suppositions could be that recent financial market volatility and low returns for that volatility are encouraging consumers to put more of their savings back into housing rather than the financial markets. According to the NAHB (above) demand is strong and supply (of lots upon which to build) continues to be the major hurdle for homebuilding. What we have not yet seen, however, is much of a pickup in consumer durables consumption (outside of autos), which would typically be associated with a strong housing market. As far as the Fed is concerned, it will be pleased that continued progress is being made in this important multiplier sector of the economy.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.