U.S. housing starts plummeted 17 percent in the month of February to a seasonally adjusted annual pace of 897,000 units, the lowest level since January 2014. The Commerce Department scapegoated a harsh weather after releasing a report that is the latest indication that the economy, more specifically the teetering housing market is headed in the wrong direction.
January’s starts were revised up to a 1.08 million-unit pace from the previously reported 1.07 million-unit rate, while future construction rose by just 3 percent last month.
Permits have now fallen below the 1 million-unit pace they’ve kept since July, yet economists continue to cite bad weather as the cause of the economic woes.
“A weak first quarter is now a virtual guarantee as yet another cold winter is dampening activity,” said Dan Greenhaus, chief strategist at BTIG in New York.
The Commerce Department report on new residential construction is also the latest piece of data to cast doubts on an expected mid-June interest rate hike from the Federal Reserve. Last week, economists cut their first-quarter GDP growth estimates to as low as a 1.2 percent annualized pace in the wake of a weak February retail sales report. The economy grew at a 2.2 percent rate in the fourth quarter.
Fed officials, who start a two-day policy meeting on Tuesday, are widely expected to drop the phrase “patient” from their statement on the timing and trajectory of on interest rates. U.S. Treasury debt prices continued to gain on the housing starts report, while the dollar shed losses against the euro and the yen.
Economists had forecast groundbreaking at a 1.05 million-unit pace in February, but they have now fallen below that threshold for the first time since August. Housing starts are down 3.3 percent year-over-year.
“We saw broad-based weakness across the country with the biggest declines in the Northeast and Midwest, suggesting that harsh winter weather in these regions slowed new residential construction significantly,” said Derek Lindsey, an analyst at BNP Paribas in New York. “Despite the disappointing print in starts, building permits rose and remain on an upward trend, suggesting this soft patch in construction is likely to be temporary.”
Declines were regional and across the board, as groundbreaking plummeted 56.5 percent in the Northeast to the lowest level since January 2009. Starts in the Midwest dropped 37 percent to a year low. In the West, where the weather hasn’t even been as harsh, groundbreaking activity still fell 18.2 percent. While it was the case that starts in the South only fell by 2.5 percent, it is also the region where most of the home building takes place.
Further, much of the gain in households came from rentals, which will obviously not increase American homeownership. Last month, despite the increased risk injected into the housing market from the federal government, groundbreaking on single-family homes groundbreaking, which is the largest part of the market, bottomed out by 14.9 percent to its lowest level since last June.
Groundbreaking for the multi-family homes segment tumbled by 20.8 percent, while single-family permits fell 6.2 percent last month to a nine-month low. However, multi-family permits increased by 18.3 percent.