Morning Report: Housing starts fall

Posted on February 19, 2025 by Brent Nyitray

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Housing starts fell to a seasonally adjusted annual rate of 1.366 million in January. This is a 9.8% decreased compared to December, and a 0.7% decrease on a year-over-year basis. Building Permits were flat at 1.48 million.

Homebuilder sentiment crashed in February, according to the NAHB Housing Market Index. Blame Tariffs. “While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023. Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers.”

“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB Chief Economist Robert Dietz. “Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44. Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing.”

So the HMI report was positively impacted by the 30 day suspension of tariffs.

Mortgage applications fell 6.6% last week as purchases fell 6% and refis fell 7%. “Mortgage rates decreased on average over the week, as markets brushed off unexpectedly strong inflation data. Despite mortgage rates declining, with the 30-year fixed mortgage rate dropping to 6.93 percent, mortgage applications decreased to their slowest pace since the beginning of the year,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications were down for the week, as buyers remained on the fence, although loosening inventory may help support activity in the coming months. Refinance applications had been rising in previous weeks but dipped as rates remained close to 7 percent.”

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