Housing Starts Rise Less Than Forecast, Permits Fall

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Construction At A Toll Brothers Development Ahead Of Housing Starts Figures
Patrick T. Fallon/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- - U.S. housing starts rose but below market expectations and building permits fell in March, pointing to underlying weakness in the housing market that could persist despite improving weather.

The Commerce Department said Wednesday groundbreaking increased 2.8 percent to a seasonally adjusted annual rate of 946,000. February's starts were revised to show a 1.9 percent rise rather than the previously reported 0.2 percent fall.

Economists polled by Reuters had expected starts to rise to a 973,000-unit rate last month.

"Given the weather, housing is still disappointing," said Scott Brown, chief economist at Raymond James in St. Petersburg, Fla.

Compared to March last year, starts dropped 5.9 percent, the biggest decline since April 2011.

While a brutally cold winter weighed on home building in December and January, %VIRTUAL-article-sponsoredlinks%activity has also been hampered by shortages of building lots and skilled labor as well as rising prices for materials.

A report Tuesday showed homebuilders in April were still downbeat about the sector's near-term prospects. The housing market is under strain from higher mortgage rates and elevated house prices that are sidelining potential buyers.

"Mortgage rates are higher than where they were a year ago and you have sluggish wage growth so a lot of the low-end buyers are being priced out," Brown said.

But there is a ray of hope for a pick-up. In another report Wednesday, the Mortgage Bankers Association said applications for loans to buy houses rose last week.

The MBA's builder application survey data also showed mortgage applications for new home purchases increased 15 percent in March compared to February. The data has not been adjusted for seasonal fluctuations.

Groundbreaking for single-family homes, the largest segment of the market, surged 6 percent to a 635,000-unit pace last month. Starts for the volatile multifamily homes segment fell 3.1 percent to a 311,000-unit rate.

That was the lowest level since last October.

Starts jumped 30.7 percent in the Northeast and 65.5 percent in the Midwest, but fell in both the South and West.

Permits to build homes fell 2.4 percent in March to a 990,000-unit pace. Permits for single-family homes rose 0.5 percent but fell 6.4 percent for the multifamily sector.

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Housing Starts Rise Less Than Forecast, Permits Fall
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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