Housing starts tumbled more than 16 percent in January, becoming the latest indicator to stagger due to last month’s frigid weather.
The U.S. Commerce Department announced on Feb. 19 that starts fell to a seasonally adjusted annualized rate of 880,000 from December’s revised rate of more than 1.04 million.
Fewer starts typically reflect builders’ belief that homebuyers can’t or won’t make big investments and so often point to a sluggish economy.
This month’s data, however, were largely driven by low temperatures and prolonged freezes that made building impractical nationwide.
In the Midwest, for instance, where some areas saw days with below-zero high temperatures, total starts plummeted to 50,000 from 155,000 in December, a drop of more than two-thirds.
“Weather can have a bigger impact on starts,” said Fannie Mae Chief Economist Douglas G. Duncan. “You have to put the shovel in the ground, and if you’re in Minnesota and it’s minus 10, it’s hard to get the shovel in the ground.”
Builders had expressed similar concerns.
“Development has been tough this winter in a lot of markets because of weather conditions,” said Larry Nicholson, president and CEO of Ryland Homes, in a Jan. 30 earnings call.
Still, the number had come as somewhat of a shock.
Analysts polled by Bloomberg had estimated that starts would only fall to 950,000 from the government’s initial December estimate of 999,000.
Some had rushed to slash their projections with Tuesday’s news that confidence among builders, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, had plunged 10 points, to 46 from 56.
(Scores below 50 on the HMI are considered more negative than positive.)
The weather didn’t seem to dampen data on building permits as much: Those fell only 5.4 percent, to a rate of 937,000, with most of the losses in structures of five or more units.
Permits represented the gloomiest part of the report, said Richard Moody, chief economist Regions Financial Corporation in Birmingham, Ala.
Unlike starts, permits are easy to complete in cold weather and don’t require as much readiness to build as pouring a foundation does. As a result, permits point to future activity, and a soft report may signal weakness.
Economists blamed recent dismal jobs reports and rising mortgage rates for the slowdown on permits.
But permits have outstripped starts for a number of months and that pent-up demand will drive the sector higher in spring, according to Thomas Feltmate, an economist at TD Economics.
He said that mortgage rates, which are still low by historical standards but could soon rise, will also push buyers into the market.
“I think we’re going to see a rather strong acceleration,” Feltmate said. “I don’t know if it’ll be as strong as a hockey stick situation, but I think we’ll see it pull through.”
It will be late 2016 before we get back to the 1.5 million annual starts we see at the height of the business cycle, said Duncan of Fannie Mae.
Still, David Crowe, chief economist at NAHB, said the year ahead could see almost 1.16 million starts.