iStockphoto A roofer works on a home under construction.
The numbers: Housing starts fell 5.3% to a seasonally adjusted annual 1.201 million rate in September, the Commerce Department said Wednesday. Permits were at a 1.241 million annual pace.
That nearly matched the MarketWatch consensus of a 1.208 million pace of starts.
What happened: Builders broke ground on fewer homes in September, and applied for fewer permits to start future projects, another signal that residential construction faces daunting headwinds that will limit the supply of new housing stock. Though lower on the month, starts were 3.7% higher than a year ago, while permits were 0.6% lower for the month and 1% lower than a year ago.
See: More Americans are buying new homes that haven’t even been started yet
Big picture: While the government’s new-home data is notoriously choppy and prone to sizable revisions, most of the details of this month’s report on starts show signs of waning momentum. Starts are 6.4% higher for the year to date than in the same period in 2017, but some of the details of the report are worrying.
Analysts watch the pace of single-family starts closely, because nearly all single-family houses are built for purchase, rather than rent. If builders are breaking ground on more houses, it’s a vote of confidence in the economy and buyers’ ability to finance their purchases. In September, those starts were 0.9% lower than in August, though nearly 5% higher than a year ago.
Builder sentiment, a measure analysts use to gauge likely activity levels, has made little headway this year. While the industry group that releases that index, the National Association of Home Builders, said that surging input prices had moderated since the summer, another group on Tuesday released a report saying construction materials prices were up 7.4% on the year in September.
“Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients,” said Ken Simonson, chief economist for the group, the Associated General Contractors of America. Contractors increased their asking prices of customers by just 3.5% over the same period, the group estimates.
Also read: Home builder confidence ticks up as buyer demand overcomes headwinds — for now
What they’re saying: “Although the number of permits is still higher than starts, pointing to more activity in coming months, the overall trend in housing has clearly slowed/plateaued/leveled off,” said Jennifer Lee, senior economist for BMO Capital Markets. “In other words, expect less support from residential construction for the broader economy.”
The uptick in builder sentiment in October didn’t impress Ian Shepherdson, chief economist for Pantheon Macroeconomics. “We are inclined to see this as a blip against a declining trend, triggered by higher mortgage rates,” Shepherdson wrote on Tuesday.
“Mortgage applications did nudge higher over the summer, so some uptick in sales in the next couple of months is a reasonable bet, but a sustained upward trend is too much to hope for, in our view, given the 30-basis point jump in mortgage rates since early September. Housing market activity has peaked for this cycle.”
See: Buyers are ‘fatigued,’ ‘burned out,’ but kept house-hunting even in August, real-estate agents say
Market reaction: U.S. stock futures were pointing to a negative start for the Dow Jones Industrial Average DJIA, -0.36% at the Friday open. Concerns about growth have dragged home-builder stocks XHB, -1.88% down for the year.
