Economists are dismissing the unexpected rebound in U.S. housing starts in February as temporary and perhaps weather-related, and suggest a bottom in the housing market is still some months away.
U.S. housing starts rose to an annualized pace of 583k, representing a month-over-month increase of 22.2%, according to the U.S. Department of Commerce. Economists had expected starts to decline to 450k. The previous month's reading was revised up to 477k from a previously reported 466k.
The rebound was mostly driven by a massive 82.3% increase in multi-family housing starts in the month.
"We see no specific factor that might explain this jump; multi-family starts are always noisy but this is exceptional," said Ian Shepherdson, chief U.S. economist at HFE. "With new home sales still falling and the months' supply at a record there is no reason for home building to rise. This is a temporary rebound, not a recovery, though it likely means the post-Lehman crash is over."
Meanwhile, economists at RDQ Economics said not much should be read into the rebound, noting that the weather was unusually warm in January, and that nearly all of the increased starts were in the volatile multi-family sector.
They noted, however, that with housing starts at such low levels, they don't have much farther to fall. "We hold to the view that the level of housing construction is becoming so low in absolute terms that starts will bottom out in the months ahead and that the housing drag on GDP growth will diminish substantially in the second half of the year," they wrote in a client note.
A true recovery in housing won't be able to happen until home builder sentiment improves, high inventory levels start to decline, and credit conditions in the housing market become less restrictive, economists at Nomura Securities said.
"[This report] is a rare and welcome piece of positive news on the housing market ... but it is still too soon to call an end to the contraction in starts," they wrote.
Meanwhile, building permits rose to 547k in February, up from 531k in January. The consensus was looking for a decline to 500k building permits.
Single-family permits rose 11% in February to 373k, from January's 336k. Multiple-family unit permits fell to 174k, down from 195k units in January.
By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2009