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.
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.