Housing Starts Dip in October, the 3rd Straight Monthly Drop : Economy: Surprising 3.7% decline raises doubts about sector’s ability to support growth.
Construction of new homes and apartments fell surprisingly for a third straight month in October, the Commerce Department said Tuesday, raising doubts about the housing sector’s ability to support economic growth.
Despite tumbling mortgage rates, housing starts dropped 3.7% to a seasonally adjusted annual rate of 1.34 million. Applications for building permits also weakened last month, but by a more modest 0.7% to a rate of 1.40 million.
Starts in the West, heavily influenced by California, fell 6.5% to a rate of 346,000 a year.
Analysts noted that while starts last month were weaker than anticipated, the drop was concentrated in apartment building. The larger, single-family home building industry did not experience as sharp a falloff from September’s pace.
Single-family home building fell 2% to 1.10 million units a year while construction of apartments plunged 11.2% to an annual rate of 238,000 last month.
“Housing construction activity is certainly slowing a bit but we all knew that was going to come,” said economist David Lereah of the Mortgage Bankers Assn. “We couldn’t sustain the level of the past few months so last month’s figures are a yellow warning flag.”
Housing was a source of economic vitality in the late spring and summer, with starts rising from April through July. But waning sales and construction fit a pattern of gradual slowing in economic activity in this year’s final quarter.
Separately, the Conference Board in New York reported that consumer confidence perked up in November, with its index rising to 101.4 from a revised 96.3 in October. Economists noted, however, that the survey differed with other reports showing a slowdown in consumer spending.
Housing was a major contributor to the surge in economic growth during the third quarter of this year, when gross domestic product expanded at a 4.2% annual rate.
Economist David Seiders from the National Assn. of Home Builders said the slowing pace of home building will sap the economy in the fourth quarter and early in 1996.
“The starts number itself may hold up fairly well but as an engine of growth the housing sector may well have had its spurt, basically in the second half of this year,” Seiders said. “There’s going to have to be other sectors picking up some of the economic momentum.”
Last month’s fall in starts followed a revised decline of 0.2% in September and a 2.8% drop in August. The October fall was the sharpest in seven months, since starts tumbled 6.5% in March, the department said.
Previously, the department said starts fell 0.1% in September to a rate of 1.390 million.
Sales also are losing steam.
On Monday, the National Assn. of Realtors said October sales of existing, or previously owned, homes dropped for the first time in six months.
Monthly payments have come down sharply for a typical mortgage applicant, but not enough to spur building. Seiders said builders’ surveys indicate new home sales also are weakening.
Mortgage rates that were above 9% for a 30-year loan at the beginning of the year were down to an average 7.48% in October from 7.64% in September, according to the Federal Home Loan Mortgage Corp., or Freddie Mac.
Total starts during October were 7.9% lower than they were a year earlier in October, 1994, when they were running at a rate of 1.451 million a year.
The only region in which housing starts improved last month from September’s pace was in the Northeast, where they rose 7% to 123,000 a year.
By contrast, they dropped 8.9% in the Midwest to an annual rate of 278,000 and were down 1.5% in the South, to 590,000.
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Consumer Confidence
From a monthly survey of 5,000 U.S. households; index, 1985=100
Nov. 1995: 101.4
Source: Conference Board
