New housing construction stumbled unexpectedly last month, with total housing starts posting a 10.6% decline for a seasonally adjusted level of 529,000 units. Total permits also slipped, falling 4% to a 552,000-unit pace, according to data released Wednesday by the U.S. Census Bureau.
Industry watchers attributed the decline to the previously uncertain future of the housing tax credit, which would have expired Nov. 30, had Congress not acted earlier this month to extend and expand the credit.
“We believe housing starts’ strong decline to be only temporary, and should resume modest growth and stabilization over the next several months, as the tax credit extension should support market demand and perhaps offset some of the seasonal slowness in the winter months,” said Michael Rehaut, an analyst with J.P. Morgan in New York.
Similar forces were at work in September, when single-family starts rose 3.9% compared to the previous month as builders sought to meet demand before the credit expired, but held back on permits, which dropped 3% in September, until the credit’s future was determined.
In October, in contrast, single-family starts dropped 6.8% to a 476,000-unit pace while single-family permits remained flat at 451,000, which is just 0.2% below the previous month’s activity.
“We note that in spite of the shortfall seen in the total starts and permits data, single-family permits were basically flat, suggesting that builders were sitting on the sidelines to begin construction, but pulled permits at a similar annual clip to September while waiting for a decision on the tax credit program,” noted Carl E. Reichardt Jr., a managing director and senior equity research analyst with Wells Fargo Securities in San Francisco. “We believe November's data may show a more significant positive move in the [seasonally adjusted annual rate] now that the tax credit uncertainty has been resolved, but we caution that winter weather conditions can weigh on construction activity, potentially creating volatility in the data over the next few months as well.”
Year-over-year, total starts were down 30.7% in October, with single-family starts off 10.9%. In terms of permits, total October permits recorded a 24.3% annual decline; single-family permits dropped just 4% year-over-year.
Alison Rice is senior editor, online, at BUILDER magazine.
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