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November 20, 2018 11:00 AM, EST

Home Construction Rises 1.5% in October

Home Construction David J. Phillip/Associated Press

U.S. home construction improved 1.5% in October, but in a troubling sign, groundbreakings for single-family houses fell.

The Commerce Department said Nov. 20 housing starts rose to a seasonally adjusted annual rate of 1.23 million, up from 1.21 million in September. The gains came entirely from apartments. Starts for single-family houses slipped 1.8% last month.

Housing has stumbled in recent months as mortgage rates have climbed, putting the ability to buy a home or move up to a nicer property out of reach for more Americans. A sharp increase in mortgage rates has led to a marked decline in home construction since May, such that ground breakings have fallen 2.6% over the past 12 months.

“The housing construction cycle has peaked, but we’re not expecting a meltdown,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Some construction in the South might have been disrupted by Hurricane Florence striking the Carolinas in September and Hurricane Michael then hitting Florida and Georgia in October. But groundbreakings recovered somewhat in the South last month, increasing 4.7%.

Homebuilders are feeling slightly less confident, even if they expect to keep building.

The National Association of Home Builders and Wells Fargo housing market index was released Nov. 19 and fell 8 points — the biggest monthly drop since 2014 — to 60 points in November. Any reading above 50 points to continued growth.

The average 30-year fixed rate mortgage has shot up a full percentage point in the past year to 4.94%, according to mortgage buyer Freddie Mac. This benchmark rate is at its highest average since February 2011.

Permits, an indicator of future activity, declined 0.6% to an annual rate of 1.26 million.

This pullback in construction has occurred as sales of new homes have begun to stall.

New home purchases have plummeted for the past four months, including a 5.5% drop in September, according to a Commerce Department report last month. The annual rate of home sales has declined 15.3% since May, a striking reversal from the growth seen during the first five months of 2018.