December 16, 2014 / 1:38 PM / in 3 years

U.S. housing starts fall, but trend points to recovery

Carpenter's work on installing fascia trimwork at a housing site at Mid-Atlantic Builders "The Villages of Savannah" development in Brandywine, Maryland May 31, 2013.Gary Cameron

WASHINGTON (Reuters) - U.S. housing starts fell in November as groundbreaking for single-family homes declined after two hefty increases, in what appeared to be a brief pause in a gradual recovery trend.

Starts dropped 1.6 percent to a seasonally adjusted annual pace of 1.028 million units, the Commerce Department said on Tuesday. October's starts were revised up to a 1.045 million-unit pace.

Despite November's fall, groundbreaking is up 7.7 percent compared to the first 11 months of 2013. Starts have averaged a 990,000-unit pace so far this year, up from an average 930,000-unit rate last year.

"It is hard to complain about the housing sector," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland Pennsylvania. "The U.S. economy is on an accelerating growth path that should continue for quite some time. We don't need a robust housing market to drive growth."

Wall Street had forecast starts rising at a pace of 1.04 million units from October's previously reported pace of 1.01 million units.

In a separate report, financial data firm Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Managers Index fell to 53.7 in December, the lowest reading in 11 months, from 54.8 in November.

While the survey hints at slowing factory activity, so-called hard data such as industrial production have painted a bullish picture of the manufacturing sector and showed little sign that a sputtering global economy and crude oil price rout were having an impact on American factories.

U.S. stocks were up sharply in volatile trading and prices for U.S. Treasury debt rose. The dollar fell against a basket of currencies. Housing is being stymied by tepid wage growth, which has been far outpaced by home price increases. Higher mortgage rates are also a constraint, although they have declined from a peak reached in September 2013.

A very slow pace of household formation also is a challenge. High unemployment among young adults is forcing many to either continue living at home with their parents or share quarters with friends or relatives.

Household formation is currently running at about 500,000 a year, far below the more than 1 million mark that would signal a robust housing market.

But with job growth accelerating, wages are expected to pick up next year and pull in first-time buyers, especially young people, into the housing market, providing a tailwind for the economy. Housing has been a mild boost to growth so far in 2014.

"We believe that it will be only a matter of time before the housing recovery shifts up a gear or two and provides a crucial second wind to the economic recovery," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Single-family homes starts, the largest part of the market, fell 5.4 percent. Groundbreaking in the volatile multi-family homes segment rose 6.7 percent after October's 9.9 percent drop.

Permits for future home construction declined 5.2 percent, the biggest drop since January, to a 1.035 million-unit pace after two straight months of gains.

Permits, which lead starts by three to four months, have been above a 1 million-unit pace since July. Both single-family and multi-family permits fell.

Reporting by Lucia Mutikani; Additional reporting by Rodrigo Campos in New York; Editing by Paul Simao

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