U.S. housing starts retreated in February by more than forecast as harsh winter weather impeded activity, while still-elevated construction permits and rising backlogs suggest momentum in homebuilding will resume in coming months.
Residential starts dropped 10.3 per cent last month to a 1.42 million annualized rate, according to government data released Wednesday. The median projection in a Bloomberg survey of economists called for a 1.56 million pace.
Applications to build, a proxy for future construction, decreased 10.8 per cent to an annualized 1.68 million, exceeding the pace of starts for a seventh straight month. What’s more, backlogs continued to mount as the number of homes authorized for construction but not yet started climbed to the highest level since 2006.
While severe winter weather curbed residential construction last month, building permits near an almost 15-year high point to further gains in home construction in the months ahead. The data coincide with still-elevated homebuilder sentiment as the industry works to replenish lean inventory and meet housing demand.
U.S. builder Lennar Corp. on Tuesday reported home-purchase contracts in the three months through February rose 26 per cent from the same period last year.
While investors are keeping a close eye on rising mortgage rates and high costs for labor and lumber, government stimulus and solid household formation will continue to drive demand, Stuart Miller, Lennar’s executive chairman, said in the statement.
Along with tight inventory, “this combination indicates a sustained strong housing market with pricing power keeping pace with cost increases,” he said.
Headwinds remain, though. Rising costs for construction materials, including lumber, are making building a home more expensive. That’s also contributing to a rise in home prices, a trend that may ultimately cool the red-hot housing market.
Federal Reserve officials are expected to leave interest rates unchanged in their announcement later today. Near-zero interest rates propelled mortgage rates to record lows, helping to drive sales. Recently, mortgage rates have begun moving up, though they still remain historically low.
Construction is a weather-sensitive sector. In the February jobs report, where most sectors saw improvement, employment in construction fell 61,000 in the month. The Bureau of Labor Statistics noted “severe winter weather across much of the country may have held down employment” in the industry.
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