U.S. Housing Starts and Permits (February 2019)

Housing starts take a step back in February

• U.S. housing starts in February declined 8.7% to 1.16 million units (annualized) from an upwardly revised 1.27 million units in January. The outturn was much weaker than consensus forecast which expected a 1.6% increase.
• The decline was concentrated in the single family segment. Single-family starts plunged 17.0% to 805k, while multi-family starts posted a gain of 17.8% to 357k, bucking the declines recorded in the two previous months. 
• Building permits also edged lower, falling by 1.6% in February. The decline was concentrated in the volatile multi-family segment which was down 4.2%. Single family permits were unchanged.
• On a regional basis, gains were limited to the Midwest (+26.8%), while declines were recorded for the Northeast (-29.5%), West (-18.9%) and the South (-6.8%).

Key Implications

• After posting strong gains the previous month, much of the gain in housing starts was clawed back in February. The unexpected drop in February was the largest decline in eight months, and the falloff in single-family starts was the lowest in four years. The decline may partially reflect weather related influences in February which was colder than normal.
• The pullback may also reflect tight capacity constraints faced by builders, including higher labor and material costs, which limit their ability to ramp up supply of new homes, especially in lower priced market segments.
• Nevertheless, moderating homes prices, declining mortgage rates, and higher wages should continue to buoy housing demand. With solid demand, underpinned by fundamentals, we continue to anticipate a moderate pick-up in residential construction relative to the lackluster performance last year. This should give a boost to U.S. economic activity later this year. 

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