US housing starts rise, but underlying trend weak

WASHINGTON: US homebuilding rose in October amid a rebound in multi-family housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft.

Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 per cent to a seasonally adjusted annual rate of 1.228 million units last month.

“Rising interest rates and rising home prices are creating affordability challenges that are causing buyers to take pause and re-assess their situation,” said Scott Volling, principal at PwC in Atlanta.

Building permits fell 0.6 per cent to a rate of 1.263 million units in October.

Economists polled by Reuters had forecast housing starts rising to a 1.225 million-unit pace last month.

The struggling housing market is in stark contrast with the broader economy, which has enjoyed two straight quarters of robust growth and an unemployment rate at a near 49-year low of 3.7 per cent.

Prolonged housing weakness, together with a relentless sell-off on the stock market could stoke fears over the durability of the economy’s strength. In addition to rising borrowing costs, the housing market is also being squeezed by land and labor shortages, which have led to tight inventories and more expensive homes. Many workers are being priced out of the market as wage growth has lagged.

The 30-year fixed mortgage rate is hovering at a seven-year high of 4.94 per cent, according to data from mortgage finance agency Freddie Mac.

Wages rose 3.1 per cent in October from a year ago, trailing house price inflation of about 5.5 per cent.

Stocks on Wall Street were trading lower on Tuesday, with the Standard & Poor’s 500 index hitting a three-week low following weak results and forecasts from retailers including Target and Kohl’s Corp, and home improvement chain Lowe’s Cos.

The dollar rebounded from two-week lows against a basket of currencies, while longer-dated US Treasury yields fell.

Residential investment contracted in the first nine months of the year and housing is likely to remain a drag on economic growth in the fourth quarter. Economists expect housing activity to remain weak through the first half of 2019.

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 1.8 per cent to a rate of 865,000 units in October after declining in September.