 | Housing Starts Rose 3.0% in February to a 1.288 Million Annual Rate |
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| Posted Under: Data Watch • Home Starts |
Implications: February was a good month for home building. Housing starts rose 3% overall, led by a surge in single-family starts to the highest level since 2007. Although multi-family starts fell in February, this is a very volatile series from month to month and is still up 13% from a year ago. Part of the reason for strength in February was unusually warm weather last month, but the underlying trend in homebuilding remains up as well. Although permits for new homes declined in February, all of the decline was due to the volatile multi-family sector; permits to build single-family homes rose 3.1% to the highest level since 2007. In other words, don't expect the drop in overall permits in February to lead to a decline in the future pace of home building. Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year, so much of the recovery in home building is still ahead of us. Moreover, like in January, the "mix" of construction has been generally shifting toward single-family building. The shift toward single-family is a positive sign for the economy because, on average, each single-family home contributes to GDP about twice the amount of a multi-family unit. In other recent housing news, the NAHB index, which measures sentiment among home builders, rose to 71 in March, the highest reading for the index since 2005. More jobs, faster wage growth, and, for at least the time being, optimism about more market-friendly policies from a Trump Administration, are encouraging both prospective home buyers and builders. More broadly, new claims for jobless benefits fell 2,000 last week to 241,000. Continuing claims declined 30,000 to 2.03 million. It's still early, but it looks like nonfarm payrolls will be up in the 175,000 to 200,000 range in March, another solid month. On the manufacturing front, the Philadelphia Fed index, which measures factory sentiment in that region, fell to a still very strong 32.8 in March from a stellar 43.3 in February. Despite the decline, the March number still represents the second highest reading since late 2014 and continues to signal optimism about a major positive shift in economic policies. With figures like these, investors should not casually dismiss the possibility of a fourth rate hike later this year, despite yesterday's news that the Fed is still projecting only three rate hikes in 2017.
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