February residential construction report isn’t all bad news

March 19th, 2015

Winter weather is to blame for slow residential construction activity in February.

The Commerce Department’s residential construction figures for February provided lackluster results, but analysts don’t believe the report paints a negative picture for the housing market. This confidence stems from the assertion that external factors caused the declines.

Here are key points from the report:

  • Housing starts dropped month over month and year over year. Compared to January, February experienced a 17 percent decline.
  • Housing completions also revealed monthly and yearly reductions, falling 13.8 percent and 1.8 percent, respectively. In February, homebuilders completed construction on 850,000 new residential properties, 595,000 of which were single-family homes.
  • Permits for new residential construction presented one bright spot in the report, rising 3 percent from January and 7.7 percent from February 2014.

The improvements for building permits are what continue to herald a positive future for the housing market, according to The Wall Street Journal. While builders didn’t complete or start as many properties, the increase in permits signals a potential boost to construction in the coming months.

Harsh weather slowed down the market
Winter months are typically slower for the U.S. real estate industry in many regards, and construction is no exception. This change of pace often results from the weather, which was particularly harsh in February. The New England area, for example, saw record snowfall that shut down roadways, according to The Weather Channel.

With consumers confined to their homes and building sites covered in snow, builders truly had less activity during February. In fact, one analyst told the Journal the snowfall in the Northeast is likely to blame for the reduction in housing starts and completions. The Commerce Department data supports this assertion, as the South and West actually saw housing starts increase on a year-over-year basis.

Optimism is prevalent in the real estate sector
The Journal noted the gains for building permits weren’t exceptional but do indicate some cause for celebration compared to a few negative responses that followed the report’s release. A few analysts agree with the news source that the situation appears hopeful for the coming months.

“Even with this month’s drop in production, we expect the housing market to move forward this year in step with an improving economy,” said David Crowe, chief economist of the National Association of Home Builders.

Tom Woods, NAHB chairman, said builders anticipated the declines and look forward to the rest of 2015 with “cautious optimism.”

Consumers are still pacing the market
Another reason for positive sentiment in light of the decrease in housing starts and completions is the presence of homebuyers. Dale Francescon, co-CEO of Century Communities Inc., said in an interview that buyer traffic has seen improvements compared to the previous year, according to the Journal.

“Builders have reported that the year has started off well, and we’re not seeing anything different from that,” Francescon said. “We’re still pretty optimistic about where this year is going to be because it’s been a pretty good start.”

Furthermore, the NAHB’s March housing market index indicated builders are confident about future new-home sales. While the other two metrics tracked on the HMI – buyer traffic and current sales – declined, the measure for sales over the next six months stayed at 59 points.

If that data isn’t enough show the housing sector is still on track for growth, the Journal noted economist forecasted 2015 will far outpace 2014 for residential construction. As the spring selling season begins, the weather improves and builders put their new permits to use, the data may begin to align with those expectations.