February housing starts slip, though less than expected

Housing starts dropped in February to a seasonally adjusted annual rate of 1.599 million, according to a Wednesday report from the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).

That’s a slippage of 1.5% below January’s figure, which was upwardly revised to 1.624 million (making the monthly change from December to January an increase, rather than a decrease as previously reported).

While down month over month, February’s pace was 39.2% better than the 1.149 million units recorded in a weak February last year. Economists polled by Reuters anticipated a February rate of 1.500 million starts, meaning that despite the drop, the month’s numbers still registered above expectations.

And while a pullback in multifamily starts precipitated February’s overall drop, single-family housing starts grew month over month, posting a rate of 1.072 million, up 6.7% from January. Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, noted that single-family starts jumped 37% year over year in February, the largest annual increase since 2012.

Per Kan, February’s solid numbers and better-than-expected decline represent “another data point displaying the strength of the housing market before the impacts of coronavirus.”

Zillow economist Matthew Speakman concurred, calling the report “a kind of measuring stick for where builder activity stood just before the U.S. coronavirus outbreak began in earnest.” The firm February, he added, “could indicate that builders were in a bit of a rush to get some projects off the ground before the coming coronavirus storm.”

Odeta Kushi, deputy chief economist for First American Financial Corp., however acknowledged that “those numbers are in our rearview mirror, and the extent to which the coronavirus pandemic affects consumer confidence and future homebuilding reports remains to be seen.”

“The most recent home builder confidence report, while still upbeat, is beginning to indicate early signs of Coronavirus-driven headwinds to the construction industry,” she added, “particularly concerns around supply-side disruptions and future demand.”

Indeed, housing permits in February backslid 5.5% to a pace of 1.464 million units, though part of that decline can be attributed to January’s stout permit rate of 1.550 million, strongest since March of 2007. Mirroring the divide seen in housing starts, single-family permits rose 1.7% monthly in February, but permits for buildings with five units or more fell 20.2%.

Now, with the country bracing for more impact from the COVID-19 outbreak, the question is, what comes next? And with housing fundamentals remaining strong despite the coronavirus threat, how will the residential construction sector react once the risk begins to wane?

“While data in the coming months is sure to take a step back, the outbreak and the uncertainty that surrounds it presents an interesting problem for builders,” Speakman said. “The historic shortage of for-sale homes is unlikely to get much better as this crisis persists, and mortgage rates are sure to remain low over the same period.”

The result, Speakman said, could be a post-COVID groundswell of demand that reignites “in a flash,” presenting an interesting puzzle for builders positing when to resume construction. 

“The coming months will very likely be tough sledding for builders,” said Speakman, “but longer-term market dynamics might result in some better-than-expected readings on the other side of this crisis.”


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