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Last month, the Census Bureau reported that builders had started sharply fewer homes in January than in the prior month. This led some people to fret about the prospects for the homebuilding sector and, to the extent that “housing is the business cycle”¹, about the prospects for the wider economy.

What a difference a month makes. This morning, the Census Bureau released February new residential construction data: permits, starts, homes under construction, and completions.

It’s a much more upbeat picture, for a few reasons.

Historical data was revised up

It turns out, what we thought happened, or didn’t happen (building new homes), was wrong—in January new home permits and starts were healthier than earlier estimates suggested. As my former colleagues at Barclays put it, “the slump in January was weather related and not indicative of slower economic activity on the whole.”

The poor weather in January meant that some activity was pushed into February, and that helped drive the big m/m surge in starts. Wells Fargo economists wrote², “the double-digit pick-up is partially owed to builders playing catch-up after inclement weather in January temporarily put construction on hold in wide swaths of the nation.”

I’m still walking the dog in my winter parka, but it appears it was warm enough in large parts of the country in February for a surge in starts (especially the Midwest, of all places!).

Strong starts and permits for single family homes

Starts

Single-family and multifamily starts both rose, but it was the increase in single-family starts that drove the bounce-back for overall starts in February. This is a good thing: single family starts are less volatile than multifamily starts, suggesting the upward momentum is durable. Single-family unit starts increased by 12% m/m (+117,00). Multifamily units rose by 8.3% m/m (+30,000).

Permits

There are a couple of reasons I think we should pay more attention to permits than starts (and it’s not because permits lead starts—they don’t³). First, permits have historically been more accurate in identifying overall trends in the housing market. Second, permits are based on a larger sample size than housing starts.

Partly for these reasons, permits are less volatile than starts. Unsurprisingly then, permits didn’t surge like starts, but still climbed healthily. Single‐family permits rose by 1% in February to 1,031,000. Multifamily⁴ authorizations rose 4% to 487,000.

Lots of completions, driven by the West

The huge pipeline of units under construction (which were started in the pandemic and delayed by bottlenecks) finally started to shrink as homes were completed. Indeed, completions soared this month, led by the West.

Multifamily is still weak

As you may have noticed, almost all the good news is coming from the single family market, not the multifamily one. There are several headwinds for builders of multi-unit structures: tighter lending conditions, rising apartment vacancies, and weak rent growth.

And the deluge of units in the pipeline that are now coming to completion will prolong the pain. Over at Thesis Driven , Brad Hargreaves recently wrote, “the supply glut means that assets take longer to lease; for larger buildings, this could be well over 12 months. So a building delivering in Q2 2024 could still be offering lease-up concessions in Q3 2025, weighing on the rental market.”

I agree. Architect billings are a good leading indicator for multifamily starts (they lead by 10 months). The latest billings data suggests starts will remain depressed until at least next summer.

As you look at the chart below, note the units here are normalized starts: that is, the most recent reading’s deviation from the running average, divided by the volatility over that period. It’s a handy way of comparing two series that have different characteristics.

Some are more optimistic. Wells Fargo wrote, “although new development has shifted to a lower gear, some green shoots are evident in the multifamily market. Apartment demand has largely held steady amid a strong pace of economic growth and adverse affordability conditions in the single-family market. These factors should continue to be supportive of apartment demand in the near-term.”

But the weakness in multifamily shouldn’t detract from the larger takeaway from today’s data: the home construction market is chugging along just fine, and banks including Goldman Sachs revised their GDP forecasts up slightly as a result.