US economy

New US home construction tumbles in November

New US home construction fell precipitously in November after a spike in October, but a big drop in condos and apartments helped drive the move, the Commerce Department reported Friday.

Housing starts fell 18.7 percent for the month to an annual rate of 1.09 million units, seasonally adjusted
Housing starts fell 18.7 percent for the month to an annual rate of 1.09 million units, seasonally adjusted (Joe Raedle | Getty/AFP)

New US home construction fell precipitously in November after a spike in October, but a big drop in condos and apartments helped drive the move, the Commerce Department reported Friday.
Though the decline in home building was expected, it was much bigger than forecast. Analysts pointed to recent volatility in housing starts on multi-unit buildings.
Housing starts fell 18.7 percent for the month to an annual rate of 1.09 million units, seasonally adjusted, but that includes a 44 percent plunge in construction begun on buildings of at least five units.
Construction starts for single-family homes, the majority of the US housing market, fell 4.1 percent.
The sharp overall decline in residential building last month could be worrisome, as it is a key part of the US economy, and has trickle-down effects to other sectors since new homeowners typically buy appliances, furniture and other goods.
But it followed an unusually strong surge in October, with the upwardly revised 1.34 million units the strongest annual pace in housing starts in nine years.
The November drop is just "continuing on the extreme volatility of the last few months due to swings in the multifamily sector," said Mickey Levy, chief economist for the Americas and Asia at Berenberg Capital Markets.
Still, looking at a six-month period to smooth out month-over-month volatility, the average rate for new home construction starts of about 1.2 million is "only slightly better than a year ago as starts have moved sideways over the last year," Levy said.
"The housing market has disappointed in 2016, but it is still well below potential with plenty of room for improvement."
Economist Joel Naroff was a bit more optimistic saying "the housing sector remains in good shape."
In fact, while November's pace was seven percent below the November 2015 level, total housing starts for January to November are nearly five percent higher than for the same period of last year, despite a four percent decline in starts on multi-unit buildings.

Upward price pressures seen
However, Lawrence Yun, chief economist of the National Association of Realtors, warned that construction is not fast enough to ease the shortage in the housing market amid solid demand, and that will impact prices on homes and rents.
"Housing costs are rising and this trend will nudge up the broad consumer price inflation enough to surpass three percent next year, which is easily above the Federal Reserve's desired inflation target," Yun said in a blog post, referring to the Fed's two percent objective.
The weakness in housing starts "also assures continued sluggish expansion in the overall economy."
The Fed this week raised the benchmark interest rate for only the second time in a decade in order to get ahead of inflation, despite scant signs of price pressures so far.
But that increase will translate to higher mortgage rates, which Levy said "will likely hinder new home sales early next year," even though rates remain low by historical standards.
Building permits for new homes, which is a more forward-looking indicator of construction plans, also fell in November, the Commerce Department reported.
Permits dropped almost five percent to 1.2 million units. That was 6.6 percent lower than November 2015.