NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
215-497-9050

INDICATOR: February Housing Starts
KEY DATA: Starts: -5.9%; 1- Family: -0.6%; Permits: -1.6%; 1-Family: -0.2%
 
IN A NUTSHELL: “It was tough to get the shovels into the ground in February so not surprisingly, home construction fell.”

WHAT IT MEANS:  It will be nice to get through the weather-driven February data so we can start getting a better picture of what is really going on in the economy.  It’s tough when you have massive rain and snow storms over a large part of the nation to get much construction activity and that seems to have been the case.  Housing starts fell fairly sharply, but the entire decline was in the multi-family sector.  Single-family construction held up reasonably well.  Importantly, the level of single-family activity is not that bad.  It has risen nearly forty percent from last year’s terrible pace and that was even in the face of the storms.  But weather did likely play a role as construction down in the Northeast and South but up in the Midwest and West. Looking forward, permit requests were off only modestly and there is a fairly large gap between multifamily starts and permits.  That points to a likely rebound in the volatile apartment and condo segment.  As for supply, sales are still running below starts so there is still some inventory that is available to be bought.
 
MARKETS AND FED POLICY IMPLICATIONS: Everything considered, the "everything" being weather, housing construction seems to be still on track for a slow but steady recovery. The decline in February was about as expected and largely explained by the wrath of Old Man Winter.  We are likely to see a rebound in March and averaging the two months together will give us a better picture of the sector.  But this segment of the economy is likely to have lots of ups and downs going forward due to government policies.  The “first time buyer/long time owner” incentive should create a major push in April as buyers need to get their contract in order by the end of next month.  That could add to some short term sales and construction. Then will likely come the hangover from the binge that will lead to a softening in activity.  But when we finally get through it all, I am expecting housing to be a modest addition to economic growth for the rest of the year.  With the Fed meeting right now, investors will be thinking more about what will be said than any number that has come out. Don’t expect a change in the “extended period” of low interest rates phrase but watch to see if the disagreements intensify. For this Fed to tighten, job growth will have to become sustained and that is months away.  

FROM: CHRISTOPHER J. BROWN, PRESIDENT

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