Housing Starts Dip in October for 3rd Month

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 although 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, whereas 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 for October. Economists noted, however, that the survey differs with other reports showing a slowdown in consumer spending.

Housing was a major contributor to the surge in economic growth during the third quarter, 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.

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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