Home starts fell more than forecast in August, reflecting less construction of apartments and a decline in the tropical storm-hit South, representing a pause in momentum for a housing market that's been a key source of fuel for the economy.
Applications to build, a proxy for future construction, decreased 0.9%, reflecting fewer permits for multifamily housing, following a 17.9% surge in July that was the largest in 12 years. The 1.47 million rate of permits was below the median estimate for 1.51 million though it remains above the February pre-pandemic rate.
The unexpected dip in building permits "barely dents the massive increases that were racked up over the past three months," Jennifer Lee, senior economist at BMO Capital Markets, said in a note. "And note that the gap between starts and permits is positive again, pointing to more ground-building work (literally) ahead."
An increase in starts of single-family housing and a stronger home-construction market than a year earlier are consistent with one of the best-performing areas of the economy. Firm demand, reflecting record-low interest rates and changing living preferences as a result of the pandemic, has propelled homebuilder sentiment to a record high.
Housing starts rose in two of four regions. In the South, new construction decreased, reflecting in part tropical storms along the Gulf Coast. A pickup in building permits in the region to the highest since February 2007, however, indicates homebuilding will firm in coming months. New construction advanced in the Midwest to an almost 14-year high and also climbed in the West.
The government's retail sales report on Wednesday showed the secondary effects of the recent strength in housing. Spending at furniture and home furnishing outlets increased 3.8% in August from the prior year, while receipts at building materials stores were up 15.4%, according to the Commerce Department data.
The pace of strength in the housing market is nonetheless at risk of slowing if the broader economy weakens. Congress is yet to pass a new stimulus package to support small businesses and the unemployed, which could hurt family incomes and their ability to afford new homes.
A separate report Thursday showed the number of Americans applying for jobless benefits resumed its decline, signaling a gradual improvement in the battered labor market.
Stocks fell in early trading and Treasuries extended their rally as the jobless data showed a slowly improving economy.
Single-family housing starts rose to a 1.02 million annualized rate, the fastest since February. Multifamily starts, a category that tends to be volatile and includes apartment buildings and condominiums, dropped 22.7% to a 395,000 annualized pace, Thursday’s report showed.
Permits to build one-family units increased 6% to a 1.04 million annual rate, while the number of single-family projects authorized but not yet started rose to 99,000 in August, the most since the end of 2018.
