New home construction fell more than forecast in November after surging a month earlier to a nine-year high, indicating fitful progress in residential real estate.
Residential starts slumped 18.7% to a 1.09 million annualized rate last month after rising to a 1.34 million pace, Commerce Department data showed Friday. The median projection in a Bloomberg survey called for a 1.23 million pace in November. Ground-breaking jumped 27.4% in October, the most since July 1982. Permits, a proxy for future construction, also fell last month on fewer applications to build apartments.
Even with the decline, homebuilding so far this quarter is running at a faster pace on average than it was in the previous three months and permits for single-family properties rose. While challenged by a recent increase in mortgage rates, limited numbers of skilled workers and shortages of available lots, builder sentiment surged in December on optimism that President-elect Donald Trump will ease regulatory burdens.
“The current message is one of optimism that single-family starts are going to continue to gain ground in the months ahead,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a research note before the report. “Whether recent sharp rises in interest rates have a dampening effect remains to be seen.”
Economists’ estimates in the Bloomberg survey ranged from 1.13 million to 1.32 million after a previously reported October pace of 1.32 million pace. Starts decreased in all four regions last month.
The report showed a wide range for error, with a 90% chance that last month’s figure was between a 12% and 25.4% decline.
The starts data, while very volatile from month to month, follow other figures indicating steady improvement in residential real estate, including a surge in homebuilder sentiment to the highest since July 2005, according to National Association of Home Builders/Wells Fargo released Thursday.
Permits dropped 4.7% to a 1.2 million annualized rate, reflecting a 13% slide in applications for multifamily dwellings. Permits for one-family homes climbed 0.5%, the fourth straight gain.
Construction of single-family houses dropped 4.1% to an 828,000 rate from 863,000 in October.
Groundbreaking on multifamily homes, such as townhouses and apartment buildings, decreased 45.1% to an annual rate of 262,000 after a 76% surge in October. Data on these projects, which typically have led housing starts over the past few years, can be especially fickle.
A boost in mortgage rates from historical lows could act as a brake on sales and construction. The average 30-year mortgage rate climbed to 4.16% in the week ended Thursday, the highest since October 2014, according to Freddie Mac data.