Housing starts slumped in August after reaching the highest level in almost seven years, pointing to an uneven pickup in the residential real estate market that will limit its contribution to economic growth.
Beginning home construction fell 14.4%, the most since April 2013, to a 956,000 annualized rate following July’s revised 1.12 million pace that was the strongest since November 2007, the Commerce Department said today in Washington. Last month’s reading was lower than the most pessimistic forecast of any economist surveyed by Bloomberg. Building permits also fell.
Slow wage growth and tight lending standards continue to challenge the homebuilding industry by placing homeownership out of reach for some Americans. Even so, job market progress and low interest rates could pump life into residential real estate as the economic expansion gains momentum.
“This data seems a little bit weaker, but overall, the trend is still modestly higher,” said Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, who had the lowest estimate for starts among economists surveyed. “The data remains choppy, but overall the trend remains higher.”
Fewer Americans than forecast filed applications for unemployment benefits last week, a sign the labor market continues to strengthen, another report showed today.
Jobless claims decreased by 36,000 to 280,000 in the week ended Sept. 13 from 316,000 in the prior period, according to figures from the Labor Department. The median forecast of economists surveyed by Bloomberg called for decrease to 305,000.
Stock-index futures held earlier gains after the reports. The contract on the Standard Poor’s 500 Index maturing in December climbed 0.3% to 1,999.5 at 8:45 a.m. in New York.
The Commerce Department’s construction report showed permits for future projects dropped 5.6% to a 998,000 pace in August from a 1.06 million rate the prior month. They were projected to ease to a 1.04 million rate, according to the median forecast of economists surveyed.
The median estimate in a Bloomberg survey of 78 economists called for a 1.04 million pace. Forecasts ranged from 995,000 to 1.12 million after a previously reported 1.09 million in July.
Starts of single-family properties declined 2.4% to a 643,000 rate in August, the Commerce Department said. Construction of multifamily projects such as condominiums and apartments which tends to be volatile slumped 31.7% to an annual rate of 313,000, the fewest since October.
All four regions showed a decrease in groundbreaking last month, led by a 24.7% drop in the West that was the biggest since November 2012.
Today’s figures were at odds with a report yesterday showing builder confidence rose in September to the highest level since 2005. The National Association of Home Builders/Wells Fargo said its sentiment measure climbed to 59 from 55 in August.
Weather dealt a setback to builders at the beginning of the year as snow blanketed construction sites in parts of the country and cold kept some would-be buyers at home. Homebuilding bounced back in the second quarter, climbing at a 7.5% annualized rate after a 5.3% slump in the first three months of the year, data from the Commerce Department showed July 30.
Cheap borrowing costs are helping some Americans take the plunge into homeownership. The average 30-year, fixed-rate mortgage was 4.12% in the week ended Sept. 11, down from 4.53% at the start of January, according to data from Freddie Mac.
An improving job market is also helping Americans to afford a home. The economy has added an average of 215,000 jobs per month through August, according to Labor Department figures, more than the 194,000 average last year. The unemployment rate has fallen to 6.1% from 6.6% at the start of the year.
The housing rebound is good news for companies including PulteGroup Inc., a Bloomfield, Mich.-based home builder and seller.
“We’ve been actually pretty pleased with the overall progress of the U.S. housing recovery,” James Zeumer, vice president for investor relations, said in a Sept. 10 presentation. “We’re still in sort of the early-to-middle innings of what will be a protracted and methodical type of recovery.”