Housing starts were up in February. But it’s about to get rocky

Single-family home starts are up from 2018

Mar.March 18, 2020 05:00 PM
U.S. housing starts and permits are up from last year, but experts say the coronavirus could hit construction hard. (Credit: iStock)

U.S. housing starts and permits are up from last year, but experts say the coronavirus could hit construction hard. (Credit: iStock)

U.S. home builders started more projects in February compared to the same time last year, new data shows. But experts say homebuilding is going to slow down due to the spread of the coronavirus across the country over the last week.

However, the total blow is still unknown.

“Now with the expectations of more closings and more restrictive work arrangements, it’s going to impact the housing market more materially,” said Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association. “At this point, it’s too early to tell yet.”

Privately-owned housing starts came in at about 1.6 million in February, the U.S. Census Bureau reported Wednesday. While that is about 1.5 percent less than January’s revised figures, last month’s starts were up roughly 39 percent from 2019. Single-family starts also increased, by 6.7 percent in February compared to the month before.

New permits also were down in February from January, by 5.5 percent. But those also were up 13.8 percent from the year before.

The figures likely do not capture the impact the coronavirus is having on home building, some experts said.

“I think that the decline in February [from January] was partly seasonal,” said George Ratiu, senior economist at Realtor.com. “Normally it’s wintertime, you see a slight dip.”

Countries that were first hit by the virus, such as China and South Korea, have already shown signs of containment and a return to normalcy. That means in the U.S. there may be a three-month negative impact on homebuilding, Ratiu projected, particularly as life in some sectors — from retail to hotels — already has come to a standstill.

“I can expect we’re going to see similar pressures in construction,” Ratiu said.

Builder confidence already is starting to slow. The National Association of Home Builders/Wells Fargo Housing Market Index dropped two points in March to 72, according to data released Tuesday. The NAHB noted that sentiment levels have remained in the low to mid 70s for the past six months, and that the data was collected before March 4, which means that the recent stock market drops and growing economic concerns likely will be captured in next month’s report.

The industry group also noted that 21 percent of the builders it surveyed also are seeing disruptions in supply because of virus-related concerns in countries like China, where the coronavirus originated in December.

Investors last month already had started to absorb the impact of the coronavirus outside of the U.S., which led to one of the first major market sell-offs. That may have led to a ripple effect on builders, who are sensitive to capital markets and may have begun to pull back on projects, Ratiu said.

The anticipated fall off in construction and home buying goes against what some experts had predicted for 2020.

Before the pandemic, Ratiu said his firm had forecast that housing starts would jump 6 percent this year. His team also found that the U.S. was short about 3.8 million new homes, signaling the need for more housing.

“We saw signs that [home builders] were recognizing there’s a tremendous demographic wave which is favorable to housing,” Ratiu said.

Mortgage rates are lower now, thanks in part to recent actions taken by the Federal Reserve to boost the flow of credit, said Kan, of the Mortgage Bankers Association. But the recent economic uncertainty, potential layoffs and stock market volatility could have a spillover effect on previously potential buyers.

“That’s going to cause hesitation and a delay in the decision to purchase a home for many borrowers,” he said.

Write to Mary Diduch at [email protected]

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