Construction of new homes plummeted in February, as fierce winter weather froze housing starts in the Northeast and Midwest.
The Commerce Department said Tuesday that builders began construction at a seasonally adjusted annual rate of 897,000 homes in February, a steep 17 percent plunge from January. Housing starts slid 56.5 percent in the Northeast and 37 percent in the Midwest, while falling 18.2 percent in the West and 2.5 percent in the South.
The brutal cold spell across the Northeast and Midwest likely caused construction activity to slow last month. Fewer would-be buyers are touring open houses, while consumers seem intent on using their savings at the gasoline pump to pay down debt instead of spending their gains on big-ticket items such as housing.
The impact of the cold weather on construction will likely subdue overall economic growth in the first three months of 2015.
“A weak first quarter is now a virtual guarantee as yet another cold winter is dampening activity,” said Dan Greenhaus, chief strategist at the brokerage BTIG.
The National Association of Home Builders/Wells Fargo builder sentiment index released Monday slipped to 53 in March, the third straight monthly decline. Readings above 50 indicate more builders view sales conditions as good rather than poor, although the index showed a drop in buyer traffic.
The historically low mortgage rates and strong hiring in recent months should eventually drive an increase in home-buying. But sales have been muted after a relatively weak 2014.
Sales of new U.S. homes were basically flat in January, falling 0.2 percent from the previous month to a seasonally adjusted annual rate of 481,000, according to a separate Commerce Department report. Sales climbed 5.3 percent from a year earlier, when extremely harsh winter weather hurt sales.
Housing-industry analysts expect sales to rebound with the start of the spring buying season and as the broader economic strength ripples through to the housing sector. But Tuesday’s report indicates that the gains could actually be concentrated in the rental market.
Approved building permits rose 3 percent to an annual rate of 1.09 million in February, with apartments accounting for the entire gain and offsetting a decrease in permits for single-family houses.
Employers added 295,000 jobs last month, helping to bring down the national unemployment rate to a seven-year low of 5.5 percent. More Americans earning paychecks should eventually push home sales higher.
Mortgage rates are still near historic lows. The average 30-year fixed mortgage rate was 3.86 percent last week, according to the mortgage giant Freddie Mac. A year ago, it stood at 4.37 percent.