New home construction plunged 17% in February

March 17, 2015, 1:16 PM UTC

Housing to slump, again

Gary Shilling, an economist in New Jersey, delights journalists with his dour forecasts. Fear makes good headlines, of course, and he's good at making them. Problem is, he's been wrong on his biggest short -- U.S. housing -- all year. Shilling warned of a wave of foreclosures in 2012, predicting that some 3 million to 5 million homes would remain in a shadow inventory, flooding the market and hurting all U.S. home prices. But that just hasn't happened. Foreclosures are hitting markets at an orderly pace, in large part because so many foreclosures have occurred in states like Florida that require a judge to approve the process. As Shilling cried wolf in 2012, homebuilder stocks roared back, home prices steadily rose, and new homes couldn't be built fast enough in the U.S. Time for a new short, Gary.
Photograph Scott Olson via Getty Images

U.S. housing starts plunged to their lowest level in a year in February likely as harsh weather kept builders at home, a temporary setback for the housing market recovery.

Groundbreaking tumbled 17% to a seasonally adjusted annual pace of 897,000 units, the lowest level since January 2014, the Commerce Department said on Tuesday.

January’s starts were revised up to a 1.08 million-unit pace from the previously reported 1.07 million-unit rate.

February’s decline pulled starts below the one million-unit threshold for the first time since last August. Economists polled by Reuters had forecast groundbreaking at a 1.05 million-unit pace in February.

Snowy and cold weather conditions gripped much of the country in the second half of February. Harsh weather, which weighed on retail sales in February, is likely to be a drag on first-quarter growth.

Housing starts were down 3.3% compared to February last year. Groundbreaking fell in all four regions, plunging 56.5% in the Northeast to their lowest level since January 2009.

Starts in the Midwest dropped 37% to a year low. In the West, groundbreaking activity fell 18.2%. Starts in the South, where most of the home building takes place, slipped 2.5%.

But the step back in housing starts is likely to be short-lived. A rapidly tightening labor market is expected to push up wage growth and encourage more young adults to move out of their parents’ basements and set up their own homes.

Already in the fourth quarter, household formation was accelerating, breaking above the one-million mark that usually is associated with a fairly healthy housing market.
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While much of the gain in households will go into rentals, that will still be a boost to housing starts this year.

Last month, single-family homes groundbreaking, the largest part of the market, declined 14.9% to its lowest level since last June. Groundbreaking for the multi-family homes segment dived 20.8%.

In February, permits for future home construction increased 3.0% to a 1.09 million-unit pace, the highest level since last October. Permits have been above a 1 million-unit pace since July.

Single-family permits fell 6.2% last month to a nine-month low. Multi-family permits surged 18.3%.