Housing starts cooled in February after robust January

New-home construction cooled by more than expected in February on a reversal in the volatile multifamily category, while building remained on pace to contribute to economic growth this quarter.

Residential starts fell 7% in February to a 1.24 million annualized rate (the estimate had been for 1.29 million starts) after a 1.33 million pace in the prior month. Single-family home starts rose 2.9%, a second straight monthly gain, but multifamily starts fell 26.1% after a similar jump in January, according to government figures released on March 16. Permits, a proxy for future construction of all types of homes, fell 5.7% to a 1.3 million rate (compared with an estimate of 1.32 million) from a 1.38 million pace in January.

Even with February's decline, the results indicate homebuilding is continuing the progress made last year, with demand supported by a tight job market and steady pay gains. Mortgage rates remain historically low despite recent increases and consumer confidence is elevated as tax cuts aid disposable income.

The report indicated a tight supply of homes is getting an influx: The number of housing units completed rose to a 1.32 million annualized rate, the highest in 10 years. That may bode well for buyers, as the lack of inventory in recent years has helped reduce affordability.

A gauge of homebuilders' confidence eased to a four-month low but remained near its highest point in nearly two decades. Further gains in homebuilding depend on whether certain market factors persist, including a shortage of workers, rising material costs, and what developers say is a lack of buildable lots.

Single-family home starts rose to a 902,000 rate, the highest in three months, from 877,000 one month earlier. Groundbreaking on multifamily homes, such as apartment buildings and condominiums, fell to an annual rate of 334,000; however, data on these projects can be volatile.

Three of the four regions posted a decline in starts, led by the West and the South. Only in the Midwest was there an increase. The report shows a wide confidence interval, with a 90% chance that the January figure for starts ranged from a 23.7% drop to a 9.7% gain. The housing starts report is released jointly by the Census Bureau and Department of Housing and Urban Development.