Sharp Decline in February Housing Starts but Possibility of Resurgence in the Near Future

U.S. housing starts fell drastically in February to a seasonally-adjusted annual rate of 897,000.  This represented a 17% decrease from the seasonally-adjusted annual rate for January and a 3.3% decrease compared to February 2014.  It is important to note, however, that figures for housing starts are imprecise and often revised.  The estimate for February has a margin of error of 9.5 percentage points.  Harsh winter weather appears to have been a major contributing factor, as seasonally-adjusted housing starts fell by 56.5% in the Northeast and 37% in the Midwest, the two regions that were hardest hit by snow and cold temperatures in February.  However, starts also fell by 18.2% in the West and 5.9% in the South.  Alternative explanations for the drop in housing starts include a run-up in home prices and tight lending standards that are discouraging many potential homebuyers and pushing those who choose to purchase a home into cheaper, previously-owned homes instead of new construction.

Applications for building permits, a good indicator of future construction, were less affected by the harsh weather and indicate potential for a strong rebound in the housing construction market once weather conditions improve.  February applications were up 3% from January and 7.7% from the same month a year earlier.  These figures are more precise, with a margin of error of only 1.7 percentage points.

In order to determine whether the decrease in housing starts in February was attributable to the unusually harsh weather, we will need to wait and see if the uptick in permits translates to a higher start rate in the spring months.  “There is no way to get a solid read…until the (weather) distortions fully unwind, so we are stuck in a fog for at least a month,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

-Sean Griffin

Original article: 3/17/15, Kate Davidson, “U.S. Housing Starts Plunge in February,” The Wall Street Journal, http://www.wsj.com/articles/u-s-housing-starts-tumble-17-in-february-1426595495.

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3 thoughts on “Sharp Decline in February Housing Starts but Possibility of Resurgence in the Near Future

  1. nrgood17

    New home buyers have enjoyed almost historically low 30 year and 15 year interest rates on mortgages, however with the FED eyeing a change in interest rates, any rise will eventually rise 30 year and 15 year mortgage rates. That said, it will be interesting to see how that affects the resurgence of the U.S. housing market!

    Reply
  2. letitgoeverythingisawesome

    If you remember your intro micro, an increase in future prices should increase demand now as buyers try to get in before the prices go up. Since everyone thinks mortgages interest rates are going up sometime in the not so distant future, one would expect a fairly robust housing market now as buyer try to get into the market before interest rates climb.

    It should also be noted that seasonal adjustments are super important in the housing starts data, but even seasonal adjustments can’t account for craziness like the New England February since seasonalized data only adjusts for an average February not the snowiest month in New England history.

    Reply
  3. ericafleming

    As well, with the bad weather, homeowners may have waited on the construction of their new home in order to save some money in the short-run. High fueling costs were necessary this past winter to keep houses warm and running in the freezing temperatures. Thus, I would be interested to see how the U.S. Housing Starts market does in the next few months.

    Reply

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