Driven by a combination of bad weather and a slowdown in the multifamily sector, housing starts took a deep turn downward in February. Permits were off as well, though not as steeply.

The Commerce Department Wednesday reported that starts in February were at a seasonally adjusted annual rate of 479,000, 22.5% below a revised January estimate of 618,000 and 20.8% off last year's pace. It was the second lowest starts rate recorded. Analysts were expecting a rate of 575,000.

Single-family starts dropped 11.8% from January to a rate of 375,000, 28.8% below February, 2010, when federal and some state home-buyer tax credits were still in effect.

One analyst, Stephen East of Ticonderoga Securities, suggested in a research note that particularly harsh weather may have been a factor in the depressed single-family numbers. Other analysts had expected a big drop as builders rushed to get permits in place and stars going before building code changes in California.

Multifamily starts, usually volatile, proved so again, with the rate down 47% from January to 96,000 but up 54.8% from last February.

The regional data also was volatile.

The South, the largest region by far, was down only 6.3% overall in starts to a pace of 282,000 and actually up 3.9% to 215,000 for single-family starts. That represented a 1.1% drop from the same month last year overall and a drop of 17.9% for single family.

The Northeast was off 37.5% to a rate of 55,000 overall and down 20.5% to 35,000 for single family, 23.6% and 36.4% off last year's February pace, respectively. The Midwest dropped 48.6% to 57,000 overall and 31.3% to 55,000 for single-family, down 45.7% and 41.5% compared to last February.The West was off 28% to 85,000 overall and down 25.5% to 70,000, down 40.6% and 39.7%, respectively, year-over-year.

Permits were at a seasonally adjusted annual rate of 517,000, a drop of 8.2% from January and 20.5% below February, 2010. Single-family permits fell 9.3% to a rate of 382,000, 27% behind last February. The Northeast was off 27.8% overall to a rate of 57,000 and off 21.6% in single-family to 21.6%, declines of 32.9% and 41.2% from last year's February pace, respectively.

The Midwest was off 5.4% to 87,000 and down 7.8% to 59,000 for single-family, drops of 17.9% and 30.6% from the 2010 pace. The South was down 1.4% overall to a rate of 278,000 and 4.6% for single-family to 206,000, down 10.6% and 20.2%, respectively. The West fell 13.6% to 95,000 and 14.4% to 77,000 sequentially, and was down 35.8% overall and 31.3% for single-family year-over-year.

Michael Rehaut, home building analyst at J.P. Morgan, took the data in stride. In his research note, he wrote, "While modestly disappointed with this data point, and we question whether some of this drop could have been driven by the harsh weather in Jan. and Feb., we continue to believe housing demand is demonstrating a stable to slightly improving trend, as we point to several other housing indicators over the last 2-3 months. Specifically, we point to yesterday's March NAHB Survey up 1 point sequentially to 17, last month's existing home sales sequential rise of 2.7%, as well as the MBA Purchase Application index so far in March averaging 191, following Feb.'s 180 and Jan.'s 186; lastly, while January new home sales fell 12.6% to 284K, we note that this data point was nonetheless within a range that has held since May 2010."

East had a similar take. "We believe the market SHOULD take the metrics with a grain of salt because of the horrible weather in February across much of the U.S., making the data somewhat suspect. It is hard to underestimate the impact of weather on Starts. Further, when the upwardly revised Jan numbers are averaged in, we are above 550K YTD. It will take another month's data to see if Feb was an aberration. Our gut says it is. On Permits, investors should also discount the result, as we've already documented the lower buyer traffic due to weather. If buyers are not out, the builders won't take out permits. While today's data is certainly disappointing, we do not believe it is a basis to discount the entire spring selling season. We will wait another month or two before calling a trend."

Carl Reichardt of Wells Fargo added further insight in his note. "Recent field observations suggest builders are holding a modest amount of finished spec for immediate move-in customers, and waiting for build-to-order customers to increase margins rather than starting specs. We note that the South, which is the largest regional component in the census segments performed the best, which is more consistent with our survey work as the South region goes as far north as Maryland; we've noted improvement in the Carolinas, Washington, D.C., and Baltimore. It is also worth noting that sequential start comparisons were somewhat difficult as total starts in January improved 18.4% sequentially. Last, despite historically low levels of finished new home inventory, single-family housing completions increased 11.2% sequentially and 2.9% yr/yr, suggesting that builders may have pulled back new construction due to potentially sufficient near-term supply of homes available."