Construction stalls in November, but US housing market is improving

US housing starts and permits fell in November, but the underlying trend remained consistent with an improving housing market. Housing continues to be stymied by tepid wage growth and higher mortgage rates, but wages are expected to pick up next year and pull in first-time buyers.

Mike Spencer/The Star News/AP/File
Construction crews work on a home in the Brunswick Forest neighborhood in Leland, N.C. US housing starts and permits took a stumble in November, but the overall outlook for the housing market remains positive.

U.S. housing starts and permits fell in November, but the underlying trend remained consistent with an improving housing market.

Groundbreaking declined 1.6 percent to a seasonally adjusted annual 1.028 million-unit pace, the Commerce Department said on Tuesday. November's starts were revised up to a 1.045 million-unit rate.

Economists polled by Reuters had forecast starts rising to a 1.04 million-unit rate from October's previously reported 1.01 million-unit pace.

"Upward revisions to the previous month’s data meant that the picture for Q3 so far is more buoyant than the November decline suggests," Barclays economist Blerina Uruçi wrote via e-mailed analysis. "However, housing permits data showed a decline in single- and multifamily units in November and point to some headwinds for next month’s starts. Recently, the share of multifamily in total starts has increased and, given this has traditionally been the more volatile component, it has led the headline measure to become more volatile as well."

Housing continues to be stymied by tepid wage growth, which has been far outpaced by home price increases. Higher mortgage rates are also a constraint, although they have since declined from a peak reached in September 2013.

But with job growth accelerating, wages are expected to pick up next year and pull first-time buyers, especially young Americans, into the housing market, providing a tailwind for the economy.

Last month's drop in groundbreaking was concentrated in the single-family homes segment, the largest part of the market, which fell 5.4 percent to a 677,000-unit rate. Single-family starts had posted two straight months of hefty gains.

Starts for the volatile multi-family homes segment increased 6.7 percent to a 351,000-unit pace. The increase unwound some of October's 9.9 percent drop.

Multi-family starts continue to be driven by demand for rental units as many financially-strapped Americans shun home ownership.

Last month, permits dropped 5.2 percent to a 1.035 million-unit pace after two straight months of gains. That was the biggest drop since January.

Permits, which lead starts by three to four months, have been above the 1 million pace threshold since July.

Permits for single-family homes fell 1.2 percent to a 639,000-unit pace. Permits for multi-family housing tumbled 11.0 percent to a 396,000-unit pace. That followed two strong months of big increases. 

Other housing data released Tuesday pointed to short-term stumbles amid strong overall growth. The NAHB housing market index of homebuilder sentiment, a closely-watched survey the measures how the construction industry is feeling about its prospects, declined by one point to 57 in December (economists had expected a reading of 59). Still, the index remained above its six-month average of 56, suggesting strong sentiment among homebuilders.  The NAHB reported that homebuilders have seen business conditions improve over the course of 2014 and expect the environment to remain positive in 2015. 

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