Housing starts dropped 8.7 percent from January to February, according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development. February’s seasonally adjusted annual rate of 1,162,000 privately-owned housing starts was also 9.9 percent below the 2018 rate.
Single-family housing starts were particularly low, coming in 17 percent below the revised January figure.
The drop in housing starts was the biggest in eight months and single-family starts were the lowest they’ve been in two years, according to Tendayi Kapfidze, LendingTree’s chief economist.
“As there are less buyers at each price point, the appropriate market response is a slowdown in sales and an eventual easing in price momentum,” Kapfidze said. “Builders also face additional pressures from material and labor costs, thus the supply of homes at lower price points is particularly weak.”
New construction authorized by permits also fell 1.6 percent month-over-month and 2 percent year-over-year to a seasonally adjusted annual rate of 1,296,000.
Despite the drop on housing starts and permits, housing completions actually rose slightly, coming in at a seasonally adjusted annual rate of 1,303,000, which is 4.5 percent above the January estimate and 1.1 percent above February 2018.
John Pataky, executive vice president at TIAA Bank said the report brings the market back down a peg.
“In this data, we still see the challenges the housing market has been dealing with over the past several months such as price growth and labor constraints,” Pataky said. “While price growth has slowed, it remains higher than wage growth on an annualized basis.”
The news isn’t all bad, however, according to Pataky.
“Rates on the 30-year fixed are in a much better position for home buyers than they were last fall when they touched 5 percent, and are still very attractive by historical standards,” Pataky said. “The economic fundamentals remain robust. If buyers decide to take decisive action in this period of flat rates and decelerating cost growth, we could see the market pick up as spring homebuying season gets under way.”
Kapfidze said he doesn’t see the slowing housing market as a risk to the broader economy.
“When we look at prior housing cycles, continued acceleration in home sales and prices would have to come at the cost of increasing leverage; this is how we got in trouble before,” Kapfidze said. “Had the market slowed in an orderly fashion in 2003/2004, we may have saved the economy from the woes unleashed later in the decade.”