US Housing Starts Rise, Large Scale Multi-family Development Continues
US home-building rose in October on continuing multi-family housing projects, but construction of single-family homes fell for a 2nd month running, suggesting the housing market has softened as mortgage rates rise.
Other details of the report published by the Commerce Department on Tuesday were also soft.
Building permits declined last month and home-building completions were the fewest in a year. Housing starts increased 1.5% to a seasonally adjusted annual rate of 1.228-M units last month.
Data for September was revised to show starts dropping to a rate of 1.210-M units instead of the previously reported pace of 1.201-M units.
Building permits slipped 0.6% to a rate of 1.263-M units in October.
Economists polled by Reuters had forecast housing starts rising to a pace of 1.225-M units last month.
The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices.
The 30-year fixed mortgage rate is hovering at a 7-year high of 4.94%, according to data from mortgage finance agency Freddie Mac.
Residential investment contracted in the 1 9 months of the year and housing is likely to remain a drag on economic growth in Q-4. Economists expect housing activity to remain weak through 1-H of Y 2019.
Single-family home-building, which accounts for the largest share of the housing market, dropped 1.8% to a rate of 865,000 units in October after declining in September.
Single-family home-building has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.
A survey on Monday showed confidence among single-family home-builders dropped to a more than 2-year low in November, with builders reporting that “customers are taking a pause due to concerns over rising interest rates and home prices.”
Single-family starts in the South, which accounts for the bulk of home-building, fell 4.0% last month. Single-family home-building jumped 14.8% in the Northeast and fell 2.0% in the West. Groundbreaking activity on single-family homes dropped 1.6% in the Midwest.
Permits to build single-family homes fell 0.6% in October to a pace of 849,000 units. These permits remain below the level of single-family starts, suggesting limited scope for a strong pickup in home-building.
Starts for the volatile multi-family housing segment rose 10.3% to a rate of 363,000 units in October. Permits for the construction of multi-family homes fell 0.5% to a pace of 414,000 units.
Tuesday’s data also suggested that housing supply is likely to remain tight in the near term. Homebuilding completions in October fell 3.3% to a rate of 1.111-M units, the lowest level since September 2017.
Realtors estimate that housing starts and completion rates need to be in a range of 1.5 to 1.6-M units per month to plug the inventory gap.
The stock of housing under construction rose 0.5% to a more than 11-year high of 1.137-M units last month. But the multi-family homes segment made up just over half of housing inventory under construction last month.
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