US homebuilding continues on modestly positive course

US housing starts in February increased 58k units to 1,178k, surpassing expectations of a moderate increase to 1,150k. Data for the previous two months have been revised to add 37k units to the overall tally. The single-family segment accounted for the lion’s share increasing by 55k, whereas multifamily construction increased only slightly by 3k on the month.

Meanwhile, building permits were much below forecast. It dropped 37k units to 1,167k, though the drop was because of the decline in volatile multifamily sector (-40k). The single-family permits countered some of the drop, increasing by 3k. Housing starts increase in the West, Midwest and South were countered slightly by a decline in the Northeast.

The housing starts report released yesterday was quite optimistic. The recovery in construction in February confirms that homebuilding in the US continues on a moderately positive course. The drop in permitting activity was somewhat anticipated with permits rising faster than starts for many months now in the multifamily segment. Importantly, moderate gains were recorded by the single family segment.

The unusually warm winter is expected to have impacted the current building activity. The unusually warm winter had pulled building activity forward into previous months. Overall, certain near-term restraint is expected in homebuilding.

Still, there is a relatively positive scenario for the housing market as the above mentioned effects dissipate. Weakness in global economy will continue to pressure long-term yields. Along with continued income and job growth, a nascent recovery in household formation, and rebounding household balance sheets, consumers are expected to be increasingly motivated to buy new homes, supporting homebuilding in the following quarters.