Housing starts increased in October, but future construction may slow

home builder constructing a wooden frameU.S. housing starts got a boost in October, thanks to a multifamily construction comeback. However, underlying data indicates the improvement may not last.

According to the Commerce Department, housing starts increased 1.5 percent in October compared to the previous month to a seasonally adjusted annual rate of 1.228 million. This information was recently reported by realtor.com’s Sarah Chaney.

Housing Starts Up Thanks To Multi-Family Construction

The growth is being attributed to the rebound in construction of housing structures with two or more living units, i.e. duplexes, condominiums, townhomes, etc. For single-family homes, construction dropped in October when compared to the previous month.

Building Permits Drop

Residential building permits, which realtor.com says can signal the amount of construction planned, fell 0.6 percent from September to an annual pace of 1.263 million. Permits were down for both multi-family housing units and single-family homes.

Consumer Optimism Waning, Builders Take Notice

“Looking ahead, starts could slip further if builders believe the consumer pause will continue and they adjust production accordingly,” said Danielle Hale, chief economist for realtor.com, in a statement. Hale noted rising home prices and mortgage rates as two other potential roadblocks for buyers.

Rising labor and material costs are likely also inhibiting builders from constructing more affordably-priced homes, economists say.

Looking at the Big Picture

It’s important to note that housing-starts data is very volatile from month to month and is subject to major revisions. According to realtor.com, October’s 1.5 percent gain had a margin of error of 12.9 percentage points.

“The broader trend shows some pickup this year, as starts grew by 5.6% in the first 10 months of 2018 compared with the same period a year earlier,” writes realtor.com’s Sarah Chaney. “This growth is modest, though, given strong economic growth this year and a historically low unemployment rate — conditions that normally tend to buoy demand for new homes. Factor such as rising prices and borrowing costs are locking some would-be buyers out of the market.”

For now, builders seem to approaching their plans with caution, due to the Federal Reserve’s plan to continue to gradually increase interest rates, the National Association of Home Builders stated. According to the trade group’s latest gauge of U.S. home builder confidence, which fell sharply this month, affordability remains a key concern.

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