Is the Housing Recovery Story Falling Apart?

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The strength of the housing recovery continues to draw skepticism. Amid frigid temperatures and a sluggish overall economy, housing starts in the United States posted their third consecutive decline last month.

According to the U.S. Department of Commerce, builders broke ground on houses at a seasonally adjusted annual rate of 907,000 units in February, down 0.2 percent from the revised January estimate of 909,000 units. February was the weakest month for housing starts since October 2013. Furthermore, housing starts were 6.4 percent below the year-ago rate of 969,000 units.

The results were worse than expected, which has been a common theme over the past year. On average, economists expected housing starts to come in around a 910,000-unit pace in February. This follows a January reading that posted the biggest miss of expectations in seven months. On the positive, single-family housing starts in February edged slightly higher from January, to a rate of 583,000 units.

The cold weather has received much of the blame for poor economic reports this year, but other factors, such as housing affordability, are also responsible. Housing starts in the frozen Northeast crashed 37.5 percent in February, the biggest drop in more than two years. Making matters worse, housing starts in the West declined 5.5 percent, which cannot be blamed on weather. The Midwest also received its fair share of snow and ice this winter, but housing starts surged 34.5 percent.

New building permits — an indication of future demand — jumped 7.7 percent from January to a seasonally adjusted annual rate of 1.02 million units, the strongest pace since October. However, the results are a bit deceiving. Building permits for single-family homes actually dropped to their worst level since in over a year, while multifamily permits gained 24.3 percent.

Construction began on 926,700 homes in 2013, a significant increase from 780,000 units in the prior year, but still below the historic average of 1.5 million new homes per year since 1959. Housing starts peaked at 2.27 million units in early 2006, while the pace of home construction reached its low point in 2009 at below 500,000 units.

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