US housing starts drop more than expected in February

US housing starts declined more than expected in February, according to figures released by the Commerce Department on Tuesday.

Housing starts fell 8.7% to a seasonally-adjusted rate of 1.162m from a revised January rate of 1.273m. Analysts had been expecting a level of 1.213m. On the year, housing starts were 9.9% lower.

Single-family housing starts came in at 805,000, down 17% from the revised January figure of 970,000. Meanwhile, building permits fell 1.6% from the revised January rate to 1.296m and were down 2% from February 2018.

Privately-owned housing completions rose 4.5% from the revised January rate to a seasonally-adjusted 1.303m.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "Starts overshot in January, relative to building permits, so a correction was always likely. The percentage drop is bigger than expected partly because January starts were revised up sharply. Single-family starts reversed all the January leap, but multi-family activity, which usually is much more volatile, rose strongly. Permits are much less erratic than starts, and the key number in the whole report, single-family permits, was unchanged in February.

"The trend has dipped slightly in recent months but it’s ultimately driven by the pace of new home sales, which are set to move higher over the next few months, in the wake of the strengthening trend in mortgage applications. Starts follow permits, and will rebound in due course; the February drop is not a useful guide to the trend. Fear of a serious housing slowdown is misplaced."

Meanwhile, Berenberg economist Roiana Reid said the sizeable revision to January starts to 1.273m from 1.230m and the December revision to 1.140m from 1.037m, suggesting that the underlying trend in starts is slightly better than she had assumed, "but is still clearly mired in a soft patch".

"We remain cautiously optimistic on the outlook for new residential construction and new home sales in the coming quarters. The solid economy and labour markets, better wage growth, favourable demographics and the depleted stock of existing housing inventory should support demand for new housing units. Encouragingly, some issues that plagued the housing sector last year are fading - the bar for improvement is low."