Snowstorms Put a Chill on Housing Starts in February

Slowed by severe winter weather in the Northeast and Mid-Atlantic regions, U.S. housing starts fell 5.9% in February to an annualized rate of 575,000, the U.S. Commerce Department announced Tuesday.

That was slightly better than the prediction of economists surveyed by Bloomberg News, whose consensus had been for housing starts to drop to a 565,000 annualized rate in February from a revised 611,000 rate in January, and a 573,000 pace in December. Housing starts hit a cycle-low of 479,000 last April.

Housing starts are now virtually unchanged on a year-over-year basis: The annualized rate was 574,000 in February 2009.

Apartment and Condo Starts Tumble By Nearly Half

In February, single-family home starts dipped 0.6% to a 499,000 annualized rate, while condominium and apartment starts plunged 43%. By region, single family home starts plunged 14.0% in the East and fell 5.7% in the South; they surged 20.8% in the Midwest and rose 3.8% in the West.

Meanwhile, building permits, considered a leading indicator of residential construction, declined 1.6% to an annualized rate of 612,000 in February.

Separately, import prices fell 0.3% in February, the U.S. Labor Department announced Tuesday, pushed lower by a 1.9% dip in fuel prices. Import prices rose a revised 1.3% in January. Meanwhile, export prices fell 0.5% in February -- the first export price decline in five months, and the largest since they fell 0.7% in March 2009; lower agriculture prices accounted for most of the drop.

Too Soon to Discern a Trend

Economists follow the housing start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance and landscaping, among others. Hence, a sustained increase in housing starts usually puts upward pressure on U.S. GDP.

However, economists also caution that monthly housing start data contains a wide margin of error and revisions can be large. In addition, housing analysts underscore that it can take three to five months for a housing trend to form, and retrenchments are possible.

Further, although starts fell substantially in February, investors should attach a qualifier to the month's data, due to the severe winter weather: Undoubtedly, starts would have been higher without the severe snowstorms. That said, on a 12-month basis, starts have not progressed much from a year ago, even after eliminating February's snow-skewed data -- which underscores the task that remains for policymakers as they attempt to reinvigorate this vital economic sector.
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