Led by Multi-Family Starts 

• Housing starts and permits for February came in much better than expected.
• A big jump in multi-family starts drove the increase in housing starts.
• The recent bank failures will cause the Fed to rethink its policy path when it meets next week.

Starts rose 13.8% in February to a rate of 1.450 million annualized units from an upwardly revised 1.321 million in January. This was well above the consensus expectations for a 0.1% increase to a rate of 1.310 million units. Single-family starts rose 1.1% on the month to 830,000 from 821,000 in January. Multi-family starts jumped 24.0% to a rate of 620,000 in February from 500,000 in January. Multifamily starts tend to be more volatile than single-family starts. 

Residential construction permits, a leading economic indicator jumped 13.8% to 1.524 million from 1.339 million in January. Single-family permits rose 7.6% on the month while multi-family permits rose 21.1%. The backlog of new construction remains near historical highs. The number of projects authorized but not started is near the highest level since 1974. Privately-owned housing completions came in at 1.557 million in February, a 12.2% increase from 1.388 million units in January. 

Starts and permits rose well above expectations in February mainly driven by the multi-family segments. In a separate report released yesterday, homebuilder confidence as measured by the NAHB Market Index increased 2 points from 42 in February to 44 in March. However, the index remains below 50 which indicates poor conditions for homebuilders. 

The recent bank failures add uncertainty to the U.S. economic outlook and will likely cause the Fed to rethink its policy path when the FOMC meets next week.  PNC’s expectation is that the FOMC raises the fed funds rate by 25 basis points on March 22, but there is a possibility that the FOMC keeps the rate unchanged, or even cuts it.