WASHINGTON -- U.S. new-home construction in September pulled back from a 12-year high though the key single-family category was stable, signaling the housing market is firming amid low mortgage rates and steady demand.
The Commerce Department said Thursday that overall housing starts dropped 9.4% to a seasonally adjusted annual rate of 1.26 million. The construction of new apartments plunged 28.3% to an annual pace of 327,000.
The report suggests the housing market is in solid shape, despite last month's drop. The construction of both homes and apartments has risen 1.6% in the past year. And single-family home building ticked up 0.3% in September to an annual rate of 918,000. Single-family construction typically creates more jobs than apartment units. Permits for single-family home building also rose slightly, a good sign for future building.
Lower mortgage rates and a healthy job market that is modestly increasing wages are lifting home sales and the demand for new homes. Sales of existing homes rose to a 17-month high that month and sales of new homes jumped. The average interest rate on a 30-year mortgage ticked up last week but is still at a historically low level of 3.69%.
"The upward trend for single-family construction aligns with other housing data that show strong demand for new homes by homebuyers in response to lower mortgage rates and rising incomes," said Ben Ayers, senior economist at Nationwide. "The extremely tight inventory for existing homes is also pushing more buyers into the market for new homes."
Building permits have also increased in the past year, rising 7.7%. Permits to build single-family homes rose 2.8% in September from a year earlier while apartment permits soared nearly 21%.
In September, construction fell the most in the Northeast, where it plummeted 34.3%. It also dropped sharply in the Midwest, where it declined 18.9%. Starts dropped 4% in the South and 1.9% in the West.
Mortgage rates are near historic lows, with the average interest rate on a 30-year loan below 4%. They may fall further in the coming months if the Federal Reserve cuts short-term rates at its next meeting later this month, as some economists predict.
Mortgage giant Freddie Mac -- the Federal Home Loan Mortgage Corp. -- said Thursday that the average rate for a 30-year fixed mortgage rose to 3.69% from 3.57% the previous week. That's down from 3.9% at the same time last year and by historic standards is very low.
The average rate on a 15-year mortgage moved up to 3.15% from 3.05% a week ago.
Data out next week is forecast to show existing-home sales, which make up the majority of the U.S. housing market, eased in September along with new home sales. Sales of existing homes reached a 17-month high in August, and new-home sales jumped 7% that month.
Private data on Wednesday showed homebuilder sentiment rose in October to the highest level since February 2018 as measures of prospective buyer traffic, sales and demand all improved.
A separate report Thursday indicated that the labor market remains generally healthy, as jobless claims edged up last week but were still low by historical standards. On the other hand, a Fed's Philadelphia regional factory index fell to a four-month low, adding to signs of weakness in manufacturing.
Information for this article was contributed by Christopher Rugaber of The Associated Press and by Reade Pickert and Chris Middleton of Bloomberg News.
Business on 10/18/2019