February Freeze in Housing Starts Is a Bad Bellwether

housingNew housing starts fell dramatically in February as the cold, protracted winter froze new construction in the Midwest and Northeast.

The decline will not stop with February, as the residual effects of a hard winter and a long-in-the-tooth "recovery" rarely thaw as quickly as the snowbound regions.

Money Morning's Capital Wave Strategist Shah Gilani tells why.

"While bad weather generally ratchets down housing starts, the unexpectedly large recent drop goes beyond weather factors. Homebuilders have been managing their offerings prudently, because they have to. But while the market pundits have been talking up the market, the homebuilder confidence index is going the other way," Gilani says.

On Tuesday, the Commerce Department announced that builders last month began new construction at a seasonally adjusted annual rate of 897,000 homes. This was as a sharp 17% drop from January.

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As with the severity of the month's inclement weather, the decline played out unevenly across the country. Starts fell roughly 57% in the Northeast, which was pummeled by a rolling wave of snowstorms and well-below-freezing temperatures. The next-largest decline was a 37% falloff in the Midwest, with an 18.25% drop in the West and 2.5% dip in the South.

The cold across the Midwest and Northeast at times rendered construction completely unfeasible. Single-digit temperatures with wind chills well below zero, coupled with snow blasts, provide little opportunity to frame out a house.

Roads made treacherous by the weather also had purchasers less apt to look at newly constructed homes from the fall, causing a backlog and a subsequent drop in starts.

As to conditions for a lasting recovery?

"There's nothing pushing homebuilding, there are no prime movers as a tailwind, none. The so-called housing recovery is still nothing but a grind," Shah said.

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