Washington: US home-building fell more than expected in November, tumbling from a nine-year high as construction activity declined broadly, the latest sign of slower economic growth in the fourth quarter.
But the housing market remains on solid ground, with Friday's report from the Commerce Department showing permits for the future construction of single-family homes, the biggest segment of the market, rising to a nine-year high in November.
"The economy won't be flying as high without new construction that leads to additional consumer purchases of furniture and appliances and cars. The economy has some risks to the downside," said Chris Rupkey, chief economist at MUFG Union Bank in New York.
Groundbreaking on new housing projects dropped 18.7 per cent to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said. Last month's percentage decline was the largest in nearly two years, and unwound the bulk of October's 27.3 per cent surge.
Housing starts data are choppy month-to-month, with much of the volatility coming from the multi-family segment of the market. October's starts were revised up to a 1.34 million-unit rate, the highest since July 2007, from the previously reported 1.32 million rate. Economists had forecast housing starts slipping to a 1.23 million-unit rate last month.
The report came on the heels of data this month showing a widening in the trade deficit in October and weak retail sales and industrial production in November. The Atlanta Federal Reserve is forecasting GDP rising at a 2.4 per cent annualised rate in the fourth quarter after increasing at a brisk 3.2 per cent rate in the third quarter.
Residential construction has been a drag on economic growth since the second quarter, but economists expect it will contribute to GDP this quarter.
Despite the weak report, the PHLX housing index rose 0.4 per cent, tracking a broadly firmer US stock market. Shares in the nation's largest homebuilder, D.R. Horton, gained 0.6 per cent and Lennar Corp advanced 0.3 per cent.
US Treasury debt prices rose marginally, while the dollar was little changed against a basket of currencies after scaling a 14-year high on Thursday.
Permits data upbeat
Starts fell in all four regions last month. October's surge in home building had widened the gap between permits and starts. With last month's drop in groundbreaking activity, building permits are now leading starts, which augurs well for the housing market.
Permits fell 4.7 per cent in November to a 1.20 million-unit rate. They have remained above the 1.20 million-unit level for three straight months, the longest stretch since 2007.
Single-family permits rose 0.5 per cent last month to their highest level since November 2007. Building permits for multi-family units, however, dropped 13.0 per cent.
"The trends in the single-family data still appear to be moving higher over time, which is a favorable signal regarding upcoming single-family construction activity," said Daniel Silver, an economist at JPMorgan in New York.
Economists expect housing to continue growing even with mortgage rates having jumped to their highest in more than two years following the election of Donald Trump as the next president. Trump has advocated for an expansionary fiscal policy, which could fan inflation pressures.
A survey on Thursday showed homebuilders' confidence in December hitting its highest level since July 2005, with builders anticipating strong sales.
Since the Nov. 8 presidential election, the fixed 30-year mortgage rate has increased about 60 basis points to average 4.16 per cent in the week ending on Dec. 15, the highest since October 2014, according to data from mortgage finance firm Freddie Mac.
Mortgage rates could rise further after the Federal Reserve raised its benchmark overnight interest rate on Wednesday by 25 basis points to a range of 0.50 per cent to 0.75 per cent. The US central bank forecast three rate hikes in 2017.
Last month, single-family home building fell 4.1 per cent to an 828,000-unit pace after hitting a nine-year high in October. Housing starts for the volatile multi-family segment tumbled 45.1 per cent to a 262,000-unit pace.