Highlights:
- Housing starts fell short of market expectations in March, dropping to 1,215k annualized units from February’s upwardly revised 1,303k pace (was 1,288k).
- Single and multi-unit starts both recorded declines in March but were up for the quarter as a whole. Single unit starts were at a cycle high in Q1.
- Building permits rebounded to 1,260k in March but are still running slightly short of the pace of housing starts over the last six months, limiting near-term upside risk for starts.
- Residential investment is expected to have increased by an annualized 10% in Q1, roughly matching the previous quarter’s 9.6% gain.
Our Take:
US housing activity continues to trend higher although as today’s data show the pattern isn’t always smooth. The unexpectedly large decline in March housing starts follows an upwardly revised February reading with some activity likely having been pulled forward into the first two months of this year when temperatures were unseasonably mild. For Q1 as a whole starts edged up to a fresh cycle high. Other housing data have also improved early this year – home resales are rising and multi-unit construction spending has increased strongly quarter-to-date – supporting our forecast for a 10% annualized increase in Q1 residential investment. That will provide key offset to a slowdown in consumer spending that is expected to limit GDP growth to 1.5% in the quarter. While consumers are expected to re-emerge as the main source of growth going forward, residential investment is forecast to continue to make a solid contribution to economic activity as many of the factors that support consumer spending (particularly strong labour market conditions and buoyant confidence) should also boost demand for housing. While some choppiness can be expected, we think housing starts will continue to move higher throughout 2017 to extend the upward trend that has been in place since 2011.
