Starts are Down, But not the Housing Market

Housing starts were down 7 percent month over month according to the data for February released by the U.S. Census Bureau. Housing starts were at around 1.23 million in February, down from 1.33 million in January and showing a 4 percent decrease over the same period last year.

According to economists, these numbers highlight the need for new construction to boost the overall home inventory and tame the rising prices of homes. “The fall in housing starts in February is a movement in the wrong direction,” said Lawrence Yun, Chief Economist at the National Association of Realtors. “The key to economic prosperity at this juncture of economic expansion is to produce more new homes. That will help with job creation and reduce the swift price appreciation in several markets.”

However, when the data is looked at with a broader range, things appear to be looking up. “Inventories are constrained in both the new home and existing markets. But the three-month average single-family building permits were the highest since 2007 as builders respond to the high demand. Builder confidence is high and construction jobs are increasing, all encouraging signs,” said Tendayi Kapfidze, Chief Economist at LendingTree.

Danielle Hale, Chief Economist at Realtor.com agreed. “The decrease of 7 percent in total housing starts is a step back from January’s strong reading, but single-family starts continued to increase monthly and yearly, which provides some optimism that building is picking up in the most important segment for home buyers,” Hale said.

The data also shows a 7.8 percent rise in housing completions from January, with around 1.3 million homes completed in February compared to around 1.22 million homes in the month prior.

“Housing completions, the number of net new homes added to the housing stock, increased dramatically compared with a year ago. This signals some relief for the supply shortage,” said Mark Fleming, Chief Economist at First American. “The rise in permits, the leading indicator of housing starts, in conjunction with the dramatic rise in construction employment this month, signals an upward trajectory for housing starts for the spring home-buying season.”

For the upcoming spring buying season, these numbers are a small blip on the horizon.

“Buyers have been clamoring for more homes and the uptick in single-family starts suggests that builders are responding and will hopefully do so consistently in the months ahead to push single-family starts up to 1 million,” Hale said.

Despite these numbers, 2018 has had a great start after a strong 2017, according to Kapfidze. “2017 was the strongest year for homebuilding since 2007. The tax plan will also increase builder margins by 10-15 percent, encouraging more activity including at the lower end which has been underserved in the recovery.”