U.S. homebuilding fell more than expected in February as construction of single-family homes dropped to near a two-year low, concerns over the economy were also underscored by other data on Tuesday showing consumer confidence ebbing in March, with households a bit pessimistic about the labor market. The economy is facing rising headwinds, including slowing global growth, fading fiscal stimulus, trade tensions and uncertainty over Britain’s departure from the European Union.
Those concerns contributed to the Federal Reserve’s decision last week to bring its three-year campaign to tighten monetary policy to an abrupt end, as it abandoned projections for any interest rate hikes this year. “The sugar high is just about over,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The risks are more toward the downside than the upside.”
Housing starts decreased 8.7 percent to a seasonally adjusted annual rate of 1.162 million units last month, the Commerce Department said. The percent decline was the largest in eight months, and bad weather could have contributed to the sharp drop in homebuilding last month.
Homebuilding fell in three of the four regions in February. Housing starts data for January and December were revised higher. Building permits fell 1.6 percent to a rate of 1.296 million units in February. While that was the second straight monthly drop in permits, they are now outpacing starts, which suggests a pickup in homebuilding in the months ahead.
Economists polled by Reuters had forecast housing starts falling to a pace of 1.213 million units in February. The housing market hit a soft patch last year, squeezed by higher mortgage rates, pricier lumber, and land and labor shortages, which led to tight inventories and more expensive homes. But borrowing costs have eased in the wake of the Fed’s signaling of a long pause in hiking rates.
The 30-year fixed mortgage rate dropped to an average of 4.28 percent last week, the lowest in more than a year, from 4.31 in the prior week, according to data from mortgage finance agency Freddie Mac. House price inflation is also slowing. A report from S&P/Case-Shiller on Tuesday showed house prices in the 20-metro area increased 3.6 percent from a year ago in January, the smallest gain since September 2012, after rising 4.1 percent in December.
The moderation in mortgage rates and house prices is likely to improve affordability, especially for first-time homebuyers who have been largely priced out of the market. But homebuilders remain constrained in their ability to construct more homes for the lower end of the market.
A survey last week showed confidence among homebuilders was steady in March, with builders still complaining about the scarcity of skilled workers and land, as well as zoning restrictions in many major metro areas.