KEY DATA: Starts: -8.8%; 1-Family: -9.2%; Permits: -7.7%; 1-Family: -1.2%

IN A NUTSHELL: “Home construction always bounces around like crazy, so with February being up, it was not a huge (and I mean HUGE) surprise that March was down.”

WHAT IT MEANS: The housing market has been one of the more positive parts of the economy and we have needed it to be solid. Could that strength be disappearing? I am not so sure. Housing starts fell sharply in March with both single-family and multi-family activity faltering. The weakness was almost universal as declines in both segments of the market were posted in the South, Midwest and West. In the Northeast, single-family construction also faltered, but there was a ridiculous 300% increase in multi-family starts. That rise came after an equally absurd 79% drop in February. I think you now understand why I pull my hair out when I see people using one month’s housing start numbers to come to any conclusion about the state of the industry. Looking forward, permit requests also fell. That is somewhat more worrisome as the permit demand has lagged starts for the last two months. That could signal continued softness in the market, especially since housing completions and the number of home under construction are still rising. Yesterday, the National Association of Home Builders housing market index was released and it was flat in April, another sign that the housing market is sluggish.  

 MARKETS AND FED POLICY IMPLICATIONS: The economy didn’t do particularly well in March as many indicators were weak. So, the decline in housing starts in March is being taken as an indication, possibly incorrectly, that the economy softened further. During the first quarter of this year, housing starts ran at about the same pace as they did in the fourth quarter of 2015. If there was any softening, it was insignificant. Starts during the first three months of this year were up by 14.5% over the same period in 2015, led by a 22% rise in single-family construction. Still, the sector does not seem to be poised to lead the way going forward, given the softening in permit demand. My view is that housing will likely continue to expand, but more slowly than it did during the 2012-2015 period, when it averaged double-digit increases. What does that mean for the Fed and investors. Without a robust housing market, Fed rate hike agnostics will be able to continue saying that nothing needs to be done. Meanwhile, investors will likely read the headline number and conclude that housing and the economy are in the dumps and smile. Remember, when it comes to the equity markets and the economy, it is not about the economy, it is about Fed rate hikes and the weaker the economy, the lower the probability that the FOMC will do very much this year.