By Sarah Very
Construction of new homes jumped unexpectedly in February to their highest level in five months, bolstered by a spike in single-family home-building.
Housing starts jumped 5.2 percent in February to a seasonally adjusted 1.18 million annualized rate, outpacing January’s upwardly restated 1.12 million pace, the U.S. Commerce Department said Wednesday. This outperformed the 1.15 million rate economists surveyed by Bloomberg were expecting.
The leap in February was helped as builders broke ground on a seasonally adjusted 822,000 single-family homes. This was the most since November 2007, in the last days of the housing boom.
Building of single-family homes was 7.2 percent above January’s 767,000 annualized rate, and up 37 percent from one year ago.
Single-family home starts are considered a better indicator of the housing sector’s strengths than the more volatile rate for apartments and condominiums. The building rate for these types of multi-household buildings bumped upward by 0.8 percent to 356,000 in February.
New Privately-Owned Housing Units Started (in millions)
The multifamily figures “have trended lower in recent months,” but “look solid by the standards of the past few decades,” wrote J.P. Morgan economist Daniel Silver.
New housing is a key driver of economic growth, and construction has been strengthening steadily for much of the past year.
More housing construction tends to mean more jobs – not just for the construction industry, but for suppliers of all the products that go into new-built homes, from washing machines and carpeting to picture windows and air conditioning units. Economists seemed optimistic about this month’s results for the broader economy.
“The housing recovery is alive and well,” wrote Brian Wesbury, economist at First Trust Advisors L.P, noting the rise in single-family starts. “The surge in single-family building is especially important, as each-single family home contributes to GDP about twice the amount of a multi-family unit.”
On the other hand, Comerica Bank economist Robert A. Dye said last month’s new-construction reading was “still modest by historic standards.” He pointed to a geographic pattern in starts.
Housing starts were up 7.1 percent in the south, 19.9 percent in the Midwest and 26.1 percent in the west. In contrast, “The Northeast saw a big 51.3 percent decline, likely weather-related,” Dye wrote. “This pattern suggests that starts in the Northeast will rebound next month, supporting the U.S. totals.”
Despite the jump in starts, building permits were soft in February.
Building permits, which are considered an indicator of future construction, dipped 3.1 percent to a seasonally adjusted annual rate of 1.17 million from 1.2 million last month. Despite that slippage in February, permits are up 6.3 percent versus a year ago.
Single-family authorizations were at 731,000 in February, up 0.4 percent from January’s 728,000. Reflecting the sector’s continuing recovery, permits are up a solid 16.8 percent over the past twelve months.
Economists say they aren’t too concerned with the slip in overall building permits.
“We expect housing to continue to be a bright spot in 2016-17,” wrote Wesbury. “Based on population growth and ‘scrappage,’ housing starts should rise to about 1.5 million units per year, so a great deal of recovery in home building is still ahead of us.”
Silver was also optimistic. “With these latest figures in hand, it looks like real residential investment will have a pretty strong quarter… we think there will be solid growth in permanent structures investment during the quarter, and even stronger gains in some of the other components,” such as residential improvements and brokers’ commissions.