Weather not the only Villain in Housing Start Slowdown

In a recent blog post written by Molly Boesel CoreLogicrnquestions the true role of the recent severe weather in a lag in single familyrnhousing starts.  Those single family starts,rna closely watched indicator of housing market health, were down by 13 percentrnfrom December to January and did not move appreciably in February.</p

Boesel said that the decline has been blamed on weatherrnconditions as opposed to weakness in the housing sector but asks whether, assumingrnthat is true, we can blame the Polar Vortex and seemingly endless snow for allrnreduced building activity.</p

The author looked at temperature history from January 1984rnto February 2014 and compared it to data for that period on housing starts.  To specifically address whether or notrnabnormally cold weather influenced building activity she also compared therntemperature in a given calendar month to the average temperature for the month overrnthe entire 30 year time span.  She foundrnthat, for example, the average February temperature for 30 years of Februarysrnwas 35.3 degrees while this past February it was 32.2 degrees, 3.1 degreesrncolder than normal.   When those numbersrnare broken down by region however, it is clear that some parts of the countryrnhad much more severe temperatures than others. rnThe Midwest was hit particularly hard with temperatures almost 10rndegrees colder than average and the Northeast and South also had more extremernweather.</p

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Boesel then looked at housing starts data and found itrnshowed very different levels of activity by region.  The 13-point January drop was not evenlyrndistributed; the Midwest was down 55 percent, the South by 11 percent and thernNortheast and West increased 8 and 11 percent respectively.  The West was enjoying not only a largernincrease in housing starts but above average temperatures.  So, she asks, since the West was doing sornwell, can we conclude that the below average temperatures were the cause of thernconstruction slowdown in other regions?rn</p

Boesel says the seasonal adjustments used by the Census Bureau in constructingrnits housing starts data should account for the influence of cold weather byrnregion so she ran a simple time series model to test whether the wealth/startsrnrelationship on a regional basis.  Herrnmodel shows that below average temperatures in winter months decrease startsrnand higher than average temperatures increase activity; a temperaturerndifference of one percent led to a 24-percent change in housing starts in thernMidwest, a 31-percent change in the Northeast and a 21-percent change in thernSouth.   Results for the West were not conclusive.  </p

“Based on the model data, given the actual colder-than-average temperatures,rnthe Midwest should have had a 6-percent decrease in housing starts in Januaryrnand an 11-percent decrease in February. The Northeast should have had arn6-percent decrease in starts in January and a 5-percent decrease in February,rnand the South should have had a 2-percent decrease in January and a 1-percentrndecrease in starts in February,” she said.</p

Figure 2 shows the weather adjusted change in housing starts for January andrnFebruary 2014 using the model results discussed above – or the change in startsrnnot explained by the weather. The article concludes that the weather is clearlyrna factor but does not account entirely for the monthly change in starts.  “The 55-percent January decrease in housingrnstarts in the Midwest cannot be completely attributed to the weather, but it isrnpossible that the increase in February would have been bigger had the weatherrnnot been so cold. In the Northeast and South, the results are similar -rncolder-than-average temperatures don’t sufficiently explain the significantrndecline in housing starts.”</p

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Boesel says her analysis suggests that, while past severe winters thatrnhampered construction were followed by a rebound in activity once temperaturesrnrecovered, any rebound this spring “will not be sufficient enough to counteractrnthe current weakness in the market that can’t be blamed on the weather.”

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