U.S. housing starts hit seven-month low; setback seen as temporary

Wed Nov 18, 2015 4:27pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. housing starts in October fell to a seven-month low, weighed down by a steep decline in the construction of multi-family homes, but a surge in building permits suggested the housing market remained on solid ground.

While the drop in groundbreaking activity reported by the Commerce Department on Wednesday implied a moderation in residential investment early in the fourth quarter, it did little to change the view that the Federal Reserve would hike interest rates next month.

"Overall, fundamentals for the sector remain solid. Household formation is rising, demand for new homes is outstripping supply, and home builder confidence remains near its highest level in a decade," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.

Groundbreaking dropped 11 percent to a seasonally adjusted annual pace of 1.06 million units last month, the lowest level since March, the Commerce Department said. October marked the seventh straight month that starts remained above 1 million units, the longest stretch since 2007. Building permits increased 4.1 percent to a 1.15 million-unit rate.

Rapidly rising household formation, mostly driven by young adults leaving their parental homes and a strengthening labor market, is supporting the housing sector.

Highlighting the housing market's underlying strength, a second report from the Mortgage Bankers Association showed applications for loans to purchase homes jumped 6.2 percent during the week ended Nov. 13 from a week earlier.

In the wake of the soft October housing numbers, Barclays trimmed its fourth-quarter gross domestic product estimate by one-tenth of a percentage point to a 2.2 percent annual rate.

Housing has contributed to GDP growth in each of the last six quarters, adding 0.2 percentage point to the third-quarter's 1.5 percent growth pace.   Continued...

 
People work on a construction site to build a new apartment building in Los Angeles, California February 6, 2015. REUTERS/Lucy Nicholson