Housing Starts Will Stall as Stimulus Fades

by: Markos Kaminis

Housing Starts faded in February due to weather, but in the summer months ahead, we think the potency of stimulus could prove inadequate for housing activity as well.

February's Housing Starts measured 5.9% short of January's annual pace, as poor weather hampered Northeast activity. The annual pace of starts ran at 575K, which was still higher than economists had forecast (565K). Helping the monthly divide, January's pace was revised higher to 611K, up from the previously measured 591K.

Northeast activity, which was severely weather impacted in February, fell 9.6%. Also, the southern region of the country experienced a 15.5% decline. In the West and Midwest, where weather played a significantly smaller role in activity, starts improved 7.9% and 10.6%, respectively.

Building Permits also declined by 1.6%, to an annual pace of 612K, from a revised 622K in January. Weather, of course, plays less of a role in permitting activity than in housing starts, but the severe snowfalls of February certainly hampered permitting as well. In the Northeast, permits authorized were unchanged (though up 11.8% for single unit properties). In the South, permit authorizations declined by 5.8%. The Western portion of the country saw a 2.1% decline in activity, while the Midwest noted an 11.7% increase.

The First-Time Homebuyer Tax Credit, now being marketed by television advertising to help activity along, should offer a boost to March, April, May and June home sales. The impact to sales should increase as the months progress, but June marks the deadline for closings.

That said, we think the government is running out of housing stimulus powder. We are approaching a threshold where the tax credit impact should have a decreasing positive impact. The government's actions to expand the credit to reach beyond "first-time" buyers illustrates its recognition of this, or at least concern about the possibility. It is clear that stimulus intended to support sustainable housing demand is better focused on job creation now. And if the government is simply unable to revive the labor market, or dares to take on China in a trade war, double-dip recession remains a possibility as well.

Disclosure: No Positions