Housing starts take a breather in February
Just as markets were celebrating the stellar 9.7% increase in housing starts in January, the February data proved to be a damper for that enthusiasm. Housing starts decreased by 7% in February and were down 4% as compared to the same period a year ago. The US Census Bureau and Department of Housing and Urban Development have reported housing starts in February at 1.2 million, a sharp decline from the revised January reading of 1.3 million. Single-family housing starts, however, continued to improve, with an increase of 2.9% to 902,000 units. Multiple-unit starts declined from 431,000 units in January to 317,000 units in February.
Housing market (PKB) starts are generally volatile and last month’s decline was primarily because of the decline in multi-family units, which are highly volatile.
Regional trends in the housing market
The major reason for the slump in housing starts in February was the decline of starts in the multi-family units, which fell by 28.0%. Housing starts have increased by 7.6% in the Midwest region, while the Northeast, South, and Western regions have reported declines in starts by 3.5%, 7.3%, and 12.9%, respectively. Single unit starts have increased in all the regions except for the Midwest, which posted declines of 14.9%.
Implications for homebuilders
Housing starts reported in February might show a large decline, but the declines were largely because of the volatile multi-unit starts, which is likely to reverse as the overall demand for housing remains robust. Companies like Lennar and D.R. Horton (DHI) from the construction industry have seen declines in stock prices in response to the weak housing data in February.
The SPDR S&P Homebuilders (XHB) ETF, which has holdings in DR Horton, PulteGroup, and Lennar (LEN), and the DJ US Home Construction ETF (ITB) fell 9.4% and 10.7%, respectively, in February. In the next part of this series, we’ll analyze building permit data from February.