Economist's Commentary: March 19, 2008

Residential Housing Starts Decline 0.6 Percent in February; Multi-Family Units Bounce Back

By George Ratiu, Research Economist

Residential housing starts (395K PDF) in February were at a seasonally adjusted annual rate of 1,065,000, according to data released yesterday by the Census Bureau and HUD. The figure represents a 0.6 percent decline from January's revised number, and a 28.4 percent drop from February last year. Averaged over the past three months, starts have remained essentially unchanged.

Single-family housing starts in February fell to 707,000 from 758,000 in January. However, multi-family units posted a 14.5 percent gain from January and a 23.0 percent increase year-over-year. For February, multi-family starts reached 331,000.

Regionally, gains were recorded in the South and West, where housing starts were up in February 3.9 percent and 5.1 percent, respectively, compared with January. For the same period, housing starts were down 27.7 percent in the Northeast and unchanged for the Midwest.

Housing permits for single-family units, generally a reliable future indicator for housing starts, declined 6.2 percent to 639,000 in February from 681,000 in January. Multi-family housing permits also dropped to 639,000 in February, a 6.2 percent decrease from the previous month.

Overall, housing starts have experienced sharp declines in the past two years. Compared to 2005, the current activity has been cut by more than half. For the economy, the decline in construction activity hurts economic growth, as the accompanying job cuts dampen GDP growth. For the housing market, on the other hand, the cutbacks in production are needed due to the high level of inventory.

While the volume of new homes on the market has been sliding over the past year, inventories continue to remain elevated. Further cutbacks will likely bring inventory lower to the point where home prices will begin to stabilize and strengthen. In turn, this should lead to a decrease in the number of foreclosures.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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