US housing starts fell more than forecast in February as harsh winter weather hampered activity while still increased building permits and rising backlogs suggest that the momentum in housing construction will resume in the months ahead.
Housing starts fell 10.3% last month to an annualized rate of 1.42 million, the slowest since August, according to government data released Wednesday. The median projection in a Bloomberg poll of economists called for a pace of 1.56 million.
Building applications, a proxy for future construction, fell 10.8% to an annualized 1.68 million, beating the start pace for a seventh straight month. In addition, the backlog continued to grow as the number of houses approved for construction but not yet started rose to its highest level since 2006.
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While the harsh winter weather slowed residential construction last month, building permits were nearing an almost 15-year high with further growth in residential construction in the coming months. The data coincides with the still rising sentiment among builders as the industry works to replenish lean inventories and meet demand for housing.
The US contractor Lennar Corp. reported Tuesday that home sales contracts were up 26% in the three months to February compared to the same period last year.
As investors closely monitor rising mortgage rates and the high cost of labor and lumber, government incentives and sound budgeting will continue to fuel demand, Lennar chairman Stuart Miller said in the statement.
Together with the scarce inventory, "this combination indicates a persistently strong real estate market, the pricing power of which is keeping pace with rising costs," he said.
However, headwinds persist. Rising costs of building materials, including lumber, make it more expensive to build a house. This is also contributing to a spike in property prices, a trend that could ultimately cool the glowing property market.
Federal Reserve officials are expected to keep rates unchanged in their announcement today. The near-zero interest rates drove mortgage rates to lows and contributed to the increase in sales. Mortgage rates have risen recently, although historically they are still low.
Building is a weather sensitive sector. Employment in construction fell 61,000 for the month in February's employment report, which showed most sectors were improving. The Bureau of Labor Statistics noted that "severe winter weather in much of the country may have affected employment in the industry".
The number of approved and breakthrough homes rose 3.9% to 214,000 in February. The order book for single-family homes rose 6.1% last month to 121,000, the highest level since May 2007.
Single-family home building applications fell to a three-month low, while starts declined 8.5% from their slowest pace since August.