US housing starts fall from a 12-year high

U.S. homebuilding tumbled from a more than a 12-year high in September, but single-family home construction rose for a fourth straight month, suggesting the housing market remains supported by lower mortgage rates even as the economy is slowing.

Housing starts declined 9.4% to a seasonally adjusted annual rate of 1.256 million units last month as construction in the volatile multi-family housing segment dropped, the Commerce Department said on Thursday.

Data for August was revised higher to show homebuilding accelerating to a pace of 1.386 million units, which was the highest level since June 2007, instead of marching to a rate of 1.364 million units as previously reported.

Economists polled by Reuters had forecast housing starts decreasing to a pace of 1.320 million units in September. Housing starts rose 1.6% on a year-on-year basis in September.

Building permits fell 2.7% to a rate of 1.387 million in September. Permits jumped to a rate of 1.425 million units in August, the highest level since May 2007.

The housing market, the most sensitive sector to interest rates, has perked up in recent months, finally benefiting from the Federal Reserve’s monetary policy easing, which has pushed down mortgage rates from last year’s multi-year highs.

But the sector, which accounts for about 3.1% of the economy, continues to be constrained by land and labor shortages. A survey on Wednesday showed confidence among homebuilders jumped to a more than 1-1/2-year high in October.

Builders, however, said they “continue to remain cautious due to ongoing supply-side constraints and concerns about a slowing economy.” The 30-year fixed mortgage rate has dropped more than 135 basis points to an average of 3.57%, according to data from mortgage finance agency Freddie Mac.

Further declines are likely with the Fed expected to cut interest rates for the third time later this month to limit the drag on the economy from a 15-month U.S.-China trade war, which has weighed on business spending and manufacturing. The U.S. central bank cut rates in September after reducing borrowing costs in July for the first time since 2008.

Economists expect a mild rebound in residential investment in the third quarter after it contracted for six straight quarters, the longest such stretch since the 2007-2009 recession.

Single-family homebuilding, which accounts for the largest share of the housing market, rose 0.3% to a rate of 918,000 units in September, the highest level since January. Single-family housing starts fell in the Northeast, West, and Midwest, but rose in the populous South.

Permits to build single-family homes rose 0.8% to a rate of 882,000 units last month, the highest level since February 2018.

Starts for the volatile multi-family housing segment plunged 28.2% to a rate of 338,000 units in September. Permits for the construction of multi-family homes dropped 8.2% to a rate of 505,000 units last month.