- Housing starts increased by 58k units (annualized) in February to 1,178k, beating expectations for a more modest uptick to 1,150k. Revisions to the previous two months' of data added 37k units to the overall tally.
- The lion's share of the increase was concentrated in the single-family segment (+55k), while the pace of multifamily construction rose only slightly on the month (+3k).
- Building permits came in well-below expectations, declining by 37k units to 1,167k (annualized), though all of the pullback was due to the decline in the volatile multifamily sector (-40k), while single-family permits offset some of the decline (+3k).
- Gains in the West (+64k), South (+41k), and Midwest (+30k), were offset somewhat by a pullback in the Northeast (-77k).
- This morning's report was quite upbeat. February's rebound in construction confirms that homebuilding in America continues on a modestly positive course. The decline in permitting activity was somewhat expected with permits outpacing starts for several months now in the multifamily segment. Importantly, the singe family segment recorded modest gains.
- Current building activity has been likely affected by the unusually warm winter which pulled building activity forward into previous months. As such, we may continue to see some near-term restraint in homebuilding.
- Still, as these effects dissipate, we see a relatively bright future for the housing market. Any interest rate hikes will be very gradual at best – something that's likely confirmed at today's FOMC meeting. Moreover, global weakness will continue to pressure long-term yields lower. Alongside continued job and income gains, a nascent rebound household formation, and improving household balance sheets we expect households will be increasingly motivated to purchase new homes, supporting homebuilding in the coming quarters.
Neil Shankar, U.S. Regional Economist
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