US Housing Starts: Too much should not be made of February’s 8.7% drop – Wells Fargo

According to analysts at Wells Fargo, the decline in US Housing Starts in February, reverses much of the 11.7% rebound seen in January. They point out all of the swing was in single-family starts, which are more susceptible to swings in the weather.

Key Quotes:  

“The decline was almost entirely due to swings in the weather. Single-family starts had surged 19.2% in January. That month saw unseasonably mild weather across much of the country, where construction had been previously held back by incessant rains and natural disasters.”

“Multifamily starts are less impacted by the weather, and starts rebounded 17.8% in February following declines of 7.1% in January and 18.1% in December. Multifamily starts are notoriously volatile on a monthly basis and the latest swings are somewhat typical of what happens around year-end.”

“Permits are less influenced by the weather and provide a better indication of where the housing market is headed this spring. Overall permits fell 1.6% in February, with all of the drop occurring in multifamily units. Permits for single-family homes were unchanged and appear to be bottoming following a slide that began in August. We feel that is a fairly accurate assessment of where the housing market is today.”

“The Fed’s pivot on monetary policy has arrested the slide in housing starts but has not reversed it. The run-up in interest rates last year did some real damage to financial markets and the economy, which is weighing on both potential buyers and builders. Even with the recent slide in interest rates, which reflects weakening economic conditions, we do not feel we will see a rebound in housing demand until the storm clouds emanating from slower global economic growth clear later this year.”