– March 18, 2020

Housing construction activity slowed in February as starts fell by 1.5 percent while new permits dropped 5.5 percent. Total housing starts dropped to a 1.599 million annual rate from a 1.624 million pace in January. The dominant single-family segment, which accounts for about three-fourths of new home construction, rose 6.7 percent for the month to a rate of 1.072 million units. Starts of multifamily structures with five or more units slumped 17.0 percent to 508,000. From a year ago, total starts are up 39.2 percent with single-family starts up 35.4 percent and multi-family starts up 44.3 percent.

Among the four regions in the report, total starts fell in two, the Northeast (−41.4 percent) and the West (−18.2 percent) while the Midwest rose 16.7 percent and the South gained 15.2 percent. For the single-family segment, starts were up in three regions, with gains ranging from 3.0 percent in the Northeast to 18.5 percent in the South but were off 13.8 percent in the West.

For housing permits, total permits fell 5.5 percent to 1.464 million from 1.550 million in January. Total permits are 13.8 percent above the February 2019 level. Single-family permits were up 1.7 percent to 1.004 million in February (see top chart) while permits for two- to four-family units were up 4.7 percent but permits for five or more units were down 20.2 percent to 415,000. Combined, multifamily permits were 460,000, down 18.3 percent for the month (see top chart). Permits for single-family structures are up 23.3 percent from a year ago while permits for two- to four-family structures are up 25.0 percent but permits for structures with five or more units are down 5.0 percent over the past year.

Mortgage rates have been falling since late 2018.  The market reaction to the COVID-19 outbreak as well as Fed rate cuts have driven rates even lower in recent days and weeks. The rate on the 30-year fixed rate conventional mortgage is back below 3.5 percent, near all-time lows (see bottom chart).

The decline in mortgage rates since late 2018 has helped boost the National Association of Home Builders Housing Market Index from 56 in December 2018 to 76 in December 2019 but since then, the index has fallen three consecutive months, hitting 72 for March 2020 (see bottom chart). While lower mortgage rates should provide support for housing activity eventually, the COVID-19 outbreak is a major disruption to economic activity.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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