In just a slight surprise, but not much in the way of bad news, the Commerce Department earlier this morning issued data showing that U.S. housing starts had edged nominally lower last month, while building permits, a more forward-looking metric, had moved up strongly. A gain had been forecast in the former housing category; a flattish reading had been seen for permits.
Specifically, the government reported that housing starts slipped by 0.2% in February, easing to an annualized rate of 907,000 units. That was the third decline in as many months. However, a strong rebound in building permits, which, as noted, is a more forward-looking housing metric, offered some hope that the recent soft patch in this generally recovering economic sector, may be coming to an end.
The latest setback in starts followed a much more serious 11.2% drop in January, which, we sense, had been largely brought on by the cold weather and heavy snows that had blanketed much of the nation that month. Initially, the January housing setback had been estimated at 16%. So, the slightly softer February result was against a much tougher matchup. All told, expectations for starts last month had been 910,000. So, the 907,000 annualized total was only nominally off of the consensus forecasts.
As to the affected regions, groundbreaking plunged by 37.5% in the Northeast, the smallest of the four regions, as the unusually cold temperatures last month in that region, took a major toll on builders. That was the worst performance in this region since November of 2012. Starts also fell in the West, but the decline of 5.5% was much smaller. However, the other two areas noted gains, with the South, the largest region, posting an increase of 7.3%. The Midwest, the second smallest region after the Northeast, recorded an outsized increase of 34.5%.
In addition to the cold weather, housing has been losing some overall momentum since last summer, in large part because of the increase in mortgage rates at that time. Couple that with the cold temperatures and heavy snows, and we are seeing a flattening out in this key economic category. Now, with mortgage rates having edged lower once again and with the promise of spring on the horizon, it is possible that housing will strengthen anew.
One reason, in addition to the lower rates and warmer temperatures, for our cautious optimism is the fact that permits jumped by 7.7% last month to an annualized rate of 1.02 million homes. That was decidedly better than the 945,000 expectation, and a source of potential strength going forward. All in all, this was a reassuring report.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.