Residential construction numbers continued to see-saw in February.  Housing starts were particularly disappointing after their stellar performance in January. Completions is the only indicator that is running ahead of its 2018 counterpart. 

Permits for construction of residential units were issued at a seasonally adjusted annual rate of 1,296,000 units, a 1.6 percent decline from the January rate of 1,317,000 units, and the January number was a downward revision of the 1,345,000 units originally reported.  Permits dipped by 2.0 percent from the February 2018 rate of 1,323,000.

Analysts polled by Econoday were forecasting authorizations in the range of 1,290,000 to 1,320,000 units.  The consensus was 1,300,000.

Single-family permits were issued at an annual rate of 821,000, unchanged from the revised (from 812,000) January estimate and 7.3 percent lower than permits in February 2018.  Multi family permits fell by 2.9 percent for the month to a rate of 439,000 and are 12.3 percent higher than the previous February.

On a non-adjusted basis there were 90,200 permits issued in February compared to 94.4 in January.  The corresponding numbers for single-family permits were 57,700 and 58,100.

For the year-to-date (YTD) there have been 184,700 permits issued, 115,800 of them for single-family homes. These are declines of 1.9 percent and 6.5 percent respectively from the first two months of 2018.

Starts had posted an 18.6 percent surge in February to 1,230,000 units, a number than has now been revised even higher, to 1,273,000, which makes the February decline somewhat understandable.  Those starts were at a seasonally adjusted rate of 1,162,000 units, a -8.7 percent change and 9.9 percent below the February 2018 rate of 1,290,000 units.

Analysts had been looking for starts to be in the range of 1,141,000 to 1,250,000.  The consensus was 1,201,000 units.

Single-family starts were at a rate of 805,000 units, down 17.0 percent from January's 970,000 (revised from 926,000) units and 10.6 percent below the year-ago rate.  Multifamily starts were up 23.5 percent month over month to a rate of 352,000 units and 5.4 percent lower on an annual basis.

There were 81,300 units started during the month.  Of those, 55,700 were single-family homes.  The comparable numbers for January were 85,100 and 63,700.

YTD in 2019 there have been 166,400 residential housing starts compared to 181,300 in 2018, an 8.2 percent shortfall.  Single-family starts during the first two months of this year totaled 119,400, down 2.3 percent from 2018. 

Completions rose 4.5 percent from January and 1.1 percent year-over-year to a rate of 1,303,000 units. The increase however was entirely due to multifamily construction.  The rate for the sector was up 40.4 percent from January to 473,000 units, an 18.3 percent annual gain.  Single-family completions fell 10.0 percent from January and 7.5 percent from February 2018.  The annual rate of single-family completions was 816,000 units.

There were 90,400 units completed during the month compared to 86,900 in January.  Single-family completions dropped from 63,700 to 56,700.  Through the end of February there were 177,300 units completed compared to 172,600 for the same period in 2018.  Single-family completions YTD are 120,500 compared to 121,100 last year.

At the end of the reporting period there were 1,118,700 housing units under construction on a non-adjusted basis, 517,100 of them single-family residences.  An additional 196,200 units were permitted but construction had not yet begun.  Ninety-six thousand of those permits were for single-family units.

Permits were issued in the Northeast at a rate 1.5 percent higher than in January but down 5.5 percent from a year earlier.  Starts were 29.5 percent lower for the month and 25.8 percent year-over-year. Completions decline by 7.9 percent from January but were 15.9 percent higher than last year.

The Midwest saw an increase in permitting of 1.1 percent, but this was 2.1 percent lower on an annual basis.  Starts increased by 26.8 percent and 4.5 percent over the two earlier periods. Completions were 21.8 percent higher than in January and 1.3 percent above the February 2018 rate.

Permits were up 4.0 percent from January in the South and 10.7 percent higher compared to February 2018. Starts fell by 6.8 percent from January to February but were 7.8 percent higher on an annual basis. Completions rose 10.2 percent and 3.5 percent for the two periods.

The West saw a 15.0 percent reduction in permitting in February and an annual decline of 22.0 percent. Starts declined even more, down 18.9 percent and 38.3 percent respectively. Completions dropped 7.0 percent from January but were running 3.3 percent higher than last year.

The February release from the Census Bureau and the Department of Housing and Urban Development puts the residential construction report back on its normal release schedule, fully caught up after the partial government shutdown.

Additional Commentary
Tian Liu, Chief Economist at Genworth Mortgage Insurance:
“Falling interest rates since late December 2018 have helped to stabilize housing demand, especially in the single-family housing market.  However, homebuilders still face significant challenges in the market with tighter margins on new homes and relatively flat order growth, which means that housing supply will likely remain tight.”
Lawrence Yun, NAR Chief Economist:
“Housing starts falling in February is not what is needed to assure a sustainable housing market recovery. Home prices will rise in 2019 for sure. However, the home price increase could be too strong as homebuilders are insufficiently constructing new homes. The imbalance between demand and supply can once again lead to a case of home price appreciation outpacing income growth for the eighth straight year. That is good for homeowners accumulating wealth but not healthy for the broader market as it limits homeownership opportunity, especially among the millennials and widens intergenerational wealth inequality. More affordable homes need to be built to assure market balance and better access to homeownership.

The home price deceleration as reflected in the latest Case-Shiller price index of 4.3 percent is encouraging but only when compared to what happened to January. NAR’s median home price gain of only 3.6 percent in February was also welcome news. However, unless housing starts to rise consistently, home prices could soon re-accelerate upwards and lead to unaffordable housing conditions. A better scenario is more construction driving home price growth of around 3 percent, while income rushes ahead faster to about 4 percent, thereby improving housing affordability.”
Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting:
“Single-family housing starts suffered a big drop in February, to 805,000 starts from 970,000 starts. Residential construction had dipped towards the end of 2018, and the January surge was thought to be a possible sign of a bounce back. Unfortunately, we are back down to November and December levels.

On a year-over-year basis, single-family starts have dropped in four of the last five months. Single-family permits remained flat over the month, but those too have shown several months of annualized declines. The weakness in this month’s data may be a sign that builders continue to face problems with labor shortages and lot availability, even as we expect demand to pick up going into the spring buying season, fueled by lower mortgage rates.”