New-home building declined more than projected in October, led by a slump in apartment construction and showing fitful progress in residential real estate.
Residential starts dropped 11 percent to a 1.06 million annualized rate, the slowest since March, from a revised 1.19 million pace the prior month, a Commerce Department report showed Wednesday. The median forecast in a Bloomberg survey called for 1.16 million. The most construction permits for single-family homes since 2007 indicates ground-breaking will rebound in coming months.
The figures suggest the real-estate market is settling into a more sustainable pace, fueled by persistent job growth and cheap borrowing costs. A labor market that begins to drive faster wage growth would help provide additional impetus for home sales, contributing more to the economy.
“Housing is still really in a slow grind higher, and at the very least it’s stable,” said Gennadiy Goldberg, U.S. rates strategist at TD Securities LLC in New York. “Ongoing strength in permits is really a hint that you are going to get more construction.”
Estimates for starts in the Bloomberg survey ranged from 1.06 million to 1.25 million after a previously reported September pace of 1.21 million.
Permits, a proxy of future construction, increased 4.1 percent to a 1.15 million annualized rate. They were led by an increase in applications for single-family homes, which climbed to a 711,000 pace, the strongest since December 2007.
The decrease in starts last month was primarily due to a 25.1 percent slump in work on multifamily homes, the biggest since August 2014. Data on these projects, which have led housing starts in recent years, tend to be volatile.
Builders may be less willing to begin construction on new multifamily units because the number of current projects already under way has reached the highest level since 1986, the data show.
Construction of single-family houses fell 2.4 percent a 722,000 rate. The decline was due entirely to a decrease in the South as starts of detached homes picked up in the rest of the country.
Two of four regions showed decreases in total starts last month, led by an 18.6 percent slump in the South, the report showed. Construction fell 16.2 percent in the West.
Homebuilders are relatively upbeat about the market and the outlook for residential real estate. The National Association of Home Builders/Wells Fargo builder sentiment index eased this month to 62 from a decade-high 65 in October, the group’s report showed Tuesday.
Measures of current and future single-family sales declined, while a gauge of buyer traffic increased to its strongest since October 2005. Readings above 50 mean more respondents said conditions were good.
Stronger hiring has helped drive purchases as some newly hired Americans relocate. Payroll growth surged in October by the most this year. Last month’s advance lifted the monthly average so far in 2015 to 206,000. That compares with a 260,000 last year that was the best since 1999.
Borrowing costs also have remained a tailwind for those who can be approved for a loan. The average 30-year fixed mortgage rate was 3.98 percent in the week ended Nov. 12, according to Freddie Mac data. That’s close to the 3.83 percent average this year, and compares with the 6.06 percent average in the five years leading to the last recession.