US: Housing market is cooling off somewhat from the exceptionally strong pace seen late last year – Wells Fargo

Housing starts and building permits dropped more than expected in February. Analysts at Wells Fargo believe that while the recent rise in long-term interest rates will be eyed as a contributor to February's declines, the drop was mostly due to harsh winter weather in Texas, which accounts for a large proportion of US housing starts. They add that some builders may also have refrained from starting projects due to soaring building materials prices, most notably lumber. 

Key Quotes: 

“Winter weather finally arrived in force during February, abruptly reversing what had been exceptionally strong starts over the prior two months. Overall starts fell 10.3%, while single-family starts fell 8.5%. Starts plummeted 34.9% in the Midwest and plunged 39.5% in the Northeast.”

“Winter weather finally arrived in full-force during February, abruptly reversing what had been exceptionally strong starts over the prior two months. Overall starts fell 10.3% to a 1.421 million-unit pace, marking the slowest pace since August. We expected to see some cooling in home building, as soaring building material prices as well as shortages of some materials and skilled labor have pressured contractors to hold off on projects.”

“Undoubtedly, the housing market is cooling off somewhat from the exceptionally strong pace seen late last year. At that point, demand was clearly exceeding supply, leading to a surge in home prices. Inventories of new and existing homes also remain exceptionally low, which is great news for home builders. Rising mortgage rates will likely temper demand somewhat this spring, but should not undermine demand in a major way as long mortgage rates maintain a 3% handle.”

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