US homebuilding rose in October on a rebound in multifamily housing projects.

U.S. homebuilding rose in October amid a rebound in multifamily housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 percent to a seasonally adjusted annual rate of 1.228 million units last month.

Data for September was revised to show starts dropping to a rate of 1.210 million units instead of the previously reported pace of 1.201 million units.

Building permits slipped 0.6 percent to a rate of 1.263 million units in October. Economists polled by Reuters had forecast housing starts rising to a pace of 1.225 million units last month.

The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices. This is making home buying unaffordable for many workers as wage growth has lagged.

The 30-year fixed mortgage rate is hovering at a seven-year high of 4.94 percent, according to data from mortgage finance agency Freddie Mac. Wages rose 3.1 percent in October from a year ago, trailing house price inflation of about 5.5 percent.

Residential investment contracted in the first nine months of the year and housing is likely to remain a drag on economic growth in the fourth quarter. Economists expect housing activity to remain weak through the first half of 2019.

U.S. financial markets were little moved by Tuesday’s housing starts data.

Single-family homebuilding stalls

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 1.8 percent to a rate of 865,000 units in October after declining in September.

Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.

A survey on Monday showed confidence among single-family homebuilders dropped to a more than two-year low in November, with builders reporting that “customers are taking a pause due to concerns over rising interest rates and home prices.”

Single-family starts in the South, which accounts for the bulk of homebuilding, fell 4.0 percent last month. Single-family homebuilding jumped 14.8 percent in the Northeast and fell 2.0 percent in the West. Groundbreaking activity on single-family homes dropped 1.6 percent in the Midwest.

Permits to build single-family homes fell 0.6 percent in October to a pace of 849,000 units. These permits remain below the level of single-family starts, suggesting limited scope for a strong pickup in homebuilding.

Starts for the volatile multifamily housing segment surged 10.3 percent to a rate of 363,000 units in October. Permits for the construction of multifamily homes fell 0.5 percent to a pace of 414,000 units.

Tuesday’s data also suggested that housing supply is likely to remain tight in the near term. Homebuilding completions in October fell 3.3 percent to a rate of 1.111 million units, the lowest level since September 2017.

Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.


Why Home Depot Is Riding High Even As The Housing Market Dips

What housing slowdown? You wouldn’t know it from Depot’s financial performance. (photo credit: Getty)Getty

If the housing market is starting to soften, then surely the retailers that sell housing-related products – like Home Depot – must be softening, too.


As the big home improvement chain’s numbers released earlier this week prove, Home Depot HD -1.41% is doing just fine, and any direct line between housing starts or home construction and the retailer’s performance should be considered quite circumspect.

Certainly a total housing meltdown, like the Great Recession of 2008-09, is going to take a company like Depot down with it. We saw that happen, and should the sector collapse again, we will no doubt watch stores like Home Depot and its slightly smaller, less successful doppelgänger Lowe’s take it hard—again.

But the recent short-term slowing in housing, while certainly a factor in the overall economy, is nowhere near the kind of home apocalypse of a decade ago.

That’s why any short-term worries about Home Depot are best left for the short-sellers. (And shame on Wall Street for thinking otherwise.) Depot – let’s not forget it is the second-largest retailer in America – is poised to continue to outperform both its own sector and overall retailing for the foreseeable future.

How? Glad you asked.

    1. While Home Depot gets a decent amount of its business from new home construction, 45% of its overall sales are from what it calls “Pro.” These are the contractors and craftsmen who are just as likely to be working on remodeling projects as they are on from-the-ground-up new housing. And therein lies the critical part of the Depot story. People may be buying fewer homes because of rising interest rates and a shortage of affordable inventory, but they are not by any means ceasing to fix up where they live now. In fact, the case can be made that a slowdown in new homes actually creates more business in remodeling.
  1. The same goes for the do-it-yourselfer. Even if you’re not hiring a pro to come in and do some projects, you are very likely to be expending your own sweat equity on improving the old family homestead. It’s really quite logical when you think about it: When new car sales tend to slow, it’s often accompanied by a spurt of business in car repairs and refurbishing. The same goes for housing.
  2. Even if the new home market were on fire, Home Depot would continue to take market share from that prime competitor, Lowe’s. The gap between the performance of the two national chains continues to widen, and the recent turnover at the top of Lowe’s clearly indicates the retailer knows it has to get its sheetrock together to be more competitive. Maybe new CEO Marvin Ellison will make it happen. He carries the Depot DNA with him, having spent a big chunk of his career there. But it’s going to take time—and in the meantime, Home Depot is going to reap the benefits.
  3. Then there’s Home Depot’s expansion efforts—not in physical stores, but online and in the home decorating and major appliances sectors. Its e-commerce sales increases have been extraordinary. Even on what is still a relatively small base—7% of overall sales—its online business was up 28% in the quarter. The upside potential could be enormous given the total size of Depot. Similar opportunities exist in two merchandising classifications: home décor and major appliances. Seizing on weaknesses in the competition—Bed Bath & Beyond and JC Penney specifically in the former classification and, of course, Sears in the latter—Depot is putting some major effort into both of these areas. Again, this is all new business—and all market share gains.
  4. [“source=cnbc”]