• U.S. residential starts surged 22.2% M/M to 583K in February, far outpacing market expectations.
• Permit approvals were also up, rising by 3.0% M/M to 547K.
• Despite the positive tone of this report, we are not convinced that this is a sign of a bottom forming in residential construction.
U.S. housing starts rose by their largest margin since the early 1990s, surging by 22.2% M/M to 583K in February, from 477K the month before. The increase in starts brought to an end seven consecutive monthly declines in this indicator, including three consecutive double-digit drops in the past three months. Market consensus was for a fall to 450K. To temper the interpretation of the positive tone of the report, the bulk of the gains were in the volatile multi-units components, which surged by a whopping 82.3% M/M to 226K, while the more stable single-family units rose by a more modest 1.1% M/M to 357K. Despite the massive gains in February, starts are down 47.3% on a year-ago basis, and are 74.4% below their peak of 2.3 million units, which was reached just over two years ago.
Permits approvals were also up, rising by 3.0% M/M to 547K. This was also better than the drop to 500K expected by the markets, and brought to an end seven consecutive monthly declines. However, the gain were very skewed, with single-unit permits approvals rising 11.0% M/M to 373K, while multi-units approvals were down 10.8% M/M to 174K.
Despite the whopping gains in starts, which we believe was influenced in some way by the warmer weather in February compared to January, we are not convinced that this is in any way an indication that the U.S. housing market correction is coming to an end. Indeed, with the inventory of unsold homes continuing to be a millstone around the necks of homebuilders, and weak labour market conditions and tighter lending standards dampening demand, we expect both residential construction activity and permits approvals to remain quite soft for some time.