US housing starts decreased in March, in part due to the effects associated with winter storm Stella. The storm—rated a category 3 (major) on the Northeast Snowfall Impact Scale (NESIS)—dumped up to 5 feet of snow in areas of the Northeast, which hindered building projects. Construction in January and February was supported by warmer-than-usual weather, and the severe storm and cold snap in March was anticipated to affect homebuilding. Despite the temporary downturn, an increase in March building permits suggests that the housing market recovery remains intact.
Housing Starts, Permits & Completions
US housing starts were down 6.8 percent to a seasonally adjusted annual rate (SAAR) of 1,215,000 units in March. Single-family starts accounted for 821,000 units, which is 6.2 percent below the revised February figure of 875,000. The volatile multifamily segment dropped 7.9 percent to a SAAR of 394,000.
Privately-owned housing completions were 3.2 percent above February’s estimate of 1,168,000 units. "Much warmer-than-usual weather in the first two months of the year pulled starts forward into those months, and March—with more normal temperatures—saw the payback with declines in both single- and multifamily construction," said David Berson, chief economist at Nationwide Mutual Insurance.
However, single-family permits rose 1.1 percent to a rate of 823,000 units in March, while multifamily permits surged 13.8 percent. Regional performance was less volatile than it has been in recent months, as confirmed by the US Census Bureau report. Despite winter storm Stella, construction in the Northeast increased largely due to multifamily units (+13 percent). Seasonally-adjusted housing starts by region included:
- Northeast: +12.9 percent; (+16.7 percent last month)
- South: -2.9 percent; (-2.6 percent last month)
- Midwest: -16.2 percent; (+20.0 percent last month)
- West: -16.0 percent; (+16.8 percent last month)
Mortgage Rates & Market Sentiment
The 30-year fixed mortgage rate ticked up in March from 4.17 percent to 4.2 percent, which suggests the housing market is on stable footing as we head into the summer months. The National Association of Home Builders (NAHB)/Wells Fargo builder sentiment index dropped to 68 from mid-March’s 71 reading. The index has been above 60 since September, 2016 and readings above 50 indicate more builders view sales conditions as favorable rather than poor.
“The real gem of March’s report was building permits, which boomed 17% year-over-year,” noted Ralph McLaughlin, chief economist at Trulia, an online marketplace serving the real estate industry. “Permits are important because they are the earliest signals of long-run new housing supply, so any significant movement is something to take note of. What’s more, this number is statistically, so homebuyers should rest assured that new home building will continue to relieve their supply constraint in the long-run.”
Larger Market Remains Sluggish
The latest housing reports follows other recent data showing the second monthly decline in retail sales in March as well as a decrease in consumer prices, which will likely decrease any prospects of a Federal Reserve (Fed) interest rate hike in the near-term. (The Fed raised the interest rate by a quarter of a percentage point in March, and has forecast two subsequent increases this year.) "The economy seems to have hit a soft patch in the first quarter and Fed officials are likely to wait to see the rebound before raising rates again,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.
Total output from the nation’s factories, mines and utilities inched up 0.5 percent in March according to the Fed, which was in line with Wall Street expectations. The increase was heavily affected by an 8.6 percent jump in utility output as demand for heating returned to seasonal norms.
Manufacturing output fell 0.4 percent in March, led by a sizable reduction in the manufacture of vehicles and related parts. The decline in March was the first loss since August 2016, however, factory output increased at an annual rate of 2.7 percent in 1Q2017, which accounts for about 12 percent of the US economy. For 1Q as a whole, industrial production rose at an annual rate of 1.5 percent.
Recent reports on consumer and construction spending as well as inventory investment indicate that the economy slowed abruptly in 1Q2017 after gross domestic product (GDP) increased at a 2.1 percent annualized rate in 4Q2016. The Atlanta Fed is currently forecasting GDP rising at a 0.5 percent rate in 1Q2017, which would be the weakest performance since 2014.
Despite the surge we have witnessed in most markets over the last few months—including record territory for the Dow Jones Industrial Average (DJIA)—and the positive market sentiment that has been so pervasive, attitude doesn’t always translate to reality. “The clouds from the outlook skies may not lift until late this summer," Rupkey added.