Home construction sinks 5.3%

Hurricane Florence, rising mortgage rates seen as factors

Home construction like this in late August in Denver fell last month, led by declines in the South and Midwest, according to government reports.
Home construction like this in late August in Denver fell last month, led by declines in the South and Midwest, according to government reports.

WASHINGTON -- U.S. home construction fell 5.3 percent in September, a possible sign that recent hurricanes and rising mortgage rates are weighing on the market.

The Commerce Department said Wednesday that housing starts slipped last month to a seasonally adjusted annual rate of 1.2 million, down from 1.27 million in August. This year, starts have increased 6.4 percent. But the pace of homebuilding has downshifted since May.

September groundbreakings were also likely hurt by Hurricane Florence striking North Carolina -- and construction could be depressed in October after Hurricane Michael hit the Florida panhandle.

"Starts are stagnating as the housing market slows, though September's numbers were suppressed by the hurricane affecting the Carolinas," said Tendayi Kapfidze, chief economist at Lending Tree, an online loan broker.

Homebuyers are facing new cost pressures that could be dampening demand.

Mortgage buyer Freddie Mac, the Federal Home Loan Mortgage Corp., said the average 30-year fixed-rate mortgage jumped to 4.9 percent last week, the highest level since 2011. The combination of higher borrowing costs and rising home values has made home ownership less affordable.

"It may be tempting to draw national conclusions from these storm-related dips and rallies, but the regional blips can't obscure the yearlong malaise in the national single-family home construction market: Starts have been hit or miss, sales flat and permits trending downward for months," said Aaron Terrazas, a senior economist at the real estate firm Zillow.

Builders appear to be adapting to the affordability challenges. Starts for multifamily buildings such as apartments have increased at a faster clip than single-family houses.

Still, much of September's decline came from a decline in groundbreakings for multifamily buildings. That follows signs of an oversupply of apartments in some U.S. markets, but higher costs are also having an effect.

"The biggest issue is construction cost and within that, labor costs. Because of that, some deals just don't pencil out," Jeanette Rice, Americas head of multifamily research at brokerage CBRE Group Inc., said by phone.

There's also an overbuilding of multifamily units in urban cores that's suppressing rent growth, she said. Builders in previous years were able to secure easier financing from banks and the labor market wasn't as tight, creating incentives to build, she said.

Housing starts fell last month in the South and Midwest, but they increased in the Northeast and West. The construction data can be volatile, so the regional levels of homebuilding can change sharply on a monthly basis.

Permits, an indicator of future activity, fell 0.6 percent to an annual rate of 1.24 million.

Information for this article was contributed by Josh Boak of The Associated Press and by Katia Dmitrieva and Prashant Gopal of Bloomberg News.

Business on 10/18/2018

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