February Housing Starts: Calm Before the Storm

• February housing starts totaled slightly less than 1.6 million, down 1.5% from January but up 39.2% from a particularly weak February 2019, according to the U.S. Census Bureau.
• Building permits were down 5.5 percent from January but up 13.8% from a year ago.
• Housing completions in February were down 0.2 percent from January and 1.2% below a year ago.

On the surface, February’s home construction release can be viewed as the calm before the storm and a kind of measuring stick for where builder activity stood just before the U.S. coronavirus outbreak began in earnest. A sharp upward revision to initially reported starts data from January, and an almost equally strong February, could indicate that builders were in a bit of a rush to get some projects off the ground before the coming coronavirus storm. Data released Tuesday suggests that while homebuilder confidence remained near all-time highs as recently as early March, concerns over the industry’s vulnerability to the emerging coronavirus outbreak had already begun to mount even before the disease reached U.S. soil. But while data in the coming months is sure to take a step back, the outbreak and the uncertainty that surrounds it presents an interesting problem for builders. The historic shortage of for-sale homes is unlikely to get much better as this crisis persists, and mortgage rates are sure to remain low over the same period. Taken together, it seems likely that as soon as signs emerge that the crisis is passing, the demand for housing could reignite in a flash. This presents a conundrum for builders who will undoubtedly be trying to determine the best time to apply for new permits and/or resume construction so that homes are ready to sell once the market comes back. The coming months will very likely be tough sledding for builders, but longer-term market dynamics might result in some better-than-expected readings on the other side of this crisis.