- Permits, proxy for future construction, show unexpected drop
- Mortgage rates, job gains still likely to support housing
New U.S. home construction fell more than projected in August as a plunge in the South, the biggest region for building, more than offset gains in the rest of the country.
Residential starts declined 5.8 percent to a 1.14 million annualized rate, from the prior month’s revised 1.21 million pace, a Commerce Department report showed Tuesday in Washington. The median estimate of economists surveyed by Bloomberg called for a drop to 1.19 million. Permits, a proxy for future construction, unexpectedly slipped on fewer applications for apartment projects.
The figures represent a pause after a spell of strong gains, and permits show that single-family home construction in the South may bounce back. A solid job market and mortgage rates near historically low levels continue to support housing, with a measure of homebuilder sentiment rising to an 11-month high.
“It looks like housing is taking a bit of a breather in the short term,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. “I don’t think it’s anything to be overly concerned about, but I don’t think housing’s going to be as big a contribution” to growth in the second half of the year, he said.
The decline of 14.8 percent in housing starts in the South, to a 543,000 annual pace, was the steepest since October. The other three regions -- the Northeast, Midwest, and West -- all showed pickups.
Construction of single-family homes in the South may rebound in coming months, as applications to build such dwellings rose 3.6 percent to a 404,000 annualized pace, the strongest since 2007.
In the Bloomberg survey, projections for housing starts nationwide ranged from 1.1 million to 1.25 million. The pace in August was up 0.9 percent from a year earlier.
Permits decreased 0.4 percent to a 1.14 million annualized rate. They were projected to rise to a 1.17 million rate, according to the survey median.
“You don’t get a continued firming in starts if permits have been tailing off for a few months now,” Oubina said. At the same time, he said mortgage applications are rising and builder confidence is “pretty high,” and he won’t change his growth forecast based on the report.
Construction of single-family houses fell 6 percent to a 722,000 rate from 768,000 the previous month.
Work on multifamily homes, such as townhouses and apartment buildings, dropped 5.4 percent to an annual rate of 420,000. Data on these projects, which have led housing starts in recent years, can be volatile.
A separate report on Monday showed that the National Association of Home Builders/Wells Fargo index of homebuilder sentiment rose to an 11-month high in September. Readings greater than 50 mean more respondents reported market conditions as good. The index of current sales jumped to the highest in more than a decade, while the six-month sales outlook also had the best reading in almost a year.
Prospective buyers continue to face relatively low borrowing costs. Federal Reserve policy makers, who are debating when to raise the benchmark interest rate, begin a two-day meeting on Tuesday in Washington.