Homebuilding Activity Slowed in February but Is Weather to Blame?

Thursday, April 8, 2021 by Kevin Kaczmarek

Filed under: homebuilding housing starts macro housing

February single-family housing starts as reported by the Census Bureau decelerated faster than expected, leaving them at the lowest seasonally-adjusted level since August 2020. As we noted the week prior to the release in our latest Homebuilding Survey, extreme weather conditions, especially in Texas, had a negative impact on homebuilding activity.

That said, the industry is experiencing numerous cross-currents including homebuilders intentionally limiting sales due to supply-side constraints and a meaningful uptick in interest rates. So should we be worried about fundamentals? Or can we blame the weather and expect a quick bounce-back?

In order to help answer this question and separate the impact of weather from these other factors, we analyzed monthly building permit data for over 200 metro areas over the past three decades and found single-family permit growth lags meaningfully in months having unseasonably low temperatures from October through May.

Putting some numbers behind this, we looked at the seasonally-adjusted monthly sequential change of single-family building permits going back to 1988 and found that, for a given month, the years with temperatures in the lowest 15^th percentile saw sequential growth trail the typical level by 360 basis points.

Focusing on this February, median temperatures across the aforementioned markets stood at this 15^th percentile level, yet single-family building permit activity decreased 725 basis points more than is typical. Keeping in mind that the historical 360 basis points of typical underperformance includes months that were at least as cold as the 15^th percentile level, this February’s lackluster activity appears even more striking, indicating the aforementioned non-weather factors may have played a meaningful role.

For instance, temperatures in the South region were only a fraction of a degree below normal yet permit growth stood 1,300 basis points below what is typical for February. This broadly aligns with the performance of our Homebuilding Survey New Order Index, where all major regions of the country saw a deceleration in order growth, even those where the weather was in-line with historical norms.

Looking ahead, we expect the weather headwind to abate but several more fundamental factors such as supply-side constraints and higher interest rates, as well as a recent regulatory change, will persist.

Homebuilding Activity Slowed in February but Is Weather to Blame?

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