The Home Buyer's Korner

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March 20th, 2015

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New Home Starts for February 2015

New Home Sales

Housing starts fell like a rock in February and the most since 2011 as harsh winter weather made it all but impossible to work outdoors. On an annualized rate home builders began construction on 897,000 houses, which was down 17 percent from January and the fewest in a year, as reported by the Commerce Department and the number were worse that economists had expected. Many had estimated that February’s home starts would come in at 1.04 million starts and ranged from annualized rates of 975,000 to 1.08 million after a previously reported January pace of 1.07 million.

While the initial reaction can be dismissed because of the bad weather, the level of home construction continues to be depressed.

Last month, the eastern seaboard saw below-normal temperatures from Atlanta to New York and record snowfalls in New England. The National Oceanic and Atmospheric Administration’s data showed the snowiest month on record for Boston while record-low temperatures for any February were reached in Chicago, Buffalo, and Cleveland.

Permits to build single-family dwellings fell to the lowest level in almost a year, indicating home construction is lacking traction after contributing little to economic growth in 2014.

At the same time, the data underscore a shift toward more demand for rental properties that make up a smaller part of the market. Increased household formation, an improving job market and rising wages for millennial all point to a pickup in housing. But when you look at what economist are pointing at it doesn’t match their estimates.

Total building permits climbed 3 percent to a 1.09 million annualized pace, the fastest since October, but the pickup in applications are for multifamily structures while permits for single-family dwellings were the lowest since May.

Starts of single-family properties dropped 14.9 percent to a 593,000 rate in February. Construction of condominiums and apartment buildings decreased 20.8 percent to an annual rate of 304,000.

New construction dropped record 56.5 percent in the Northeast and fell 37 percent in the Midwest, which was the biggest drop since January 2014. Housing Starts also dropped in the South and West, indicating it wasn’t just about the weather.

The report backed up other data that showed builder confidence unexpectedly fell in March to an eight-month low. Sentiment decreased in three of four regions as sales dropped and the outlook for demand stalled, according to the National Association of Home Builders/Wells Fargo.

Low-interest rate home loans are keeping homes affordable. The average 30-year, fixed-rate mortgage was 3.86 percent in the week ended March 12, according to Freddie Mac’s Weekly Mortgage Interest Rate Survey. At that rate, it’s well below the average 4.26 percent rate since the bumpy expansion began in June 2009.

Greater employment opportunities are providing some support for the housing industry as well. The economy added 295,000 workers last month and more than forecast while the unemployment rate dropped to 5.5 percent and the lowest in almost seven years.

Stagnant wages, however, are damping many would-be home buyers to enter the market. Average hourly earnings rose a less-than-forecast at 0.1 percent in February. Earnings were up only two percent over the past year and maintaining it inflationary rate the so called expansion began in mid-2009.

Residential investment contributed to only 0.1 percentage point to gross domestic product in both the third and fourth quarters, according to the Commerce Department.

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