U.S. homebuilding rebounded in November, driven by a surge in multi-family housing projects, but construction of single-family homes fell to a 1-1/2-year low, pointing to deepening housing market weakness that could spill over to the broader economy.
Housing starts increased 3.2 percent to a seasonally adjusted annual rate of 1.256 million units last month, the Commerce Department said on Tuesday.
Data for October was revised down to show starts dropping to a rate of 1.217 million units instead of the previously reported pace of 1.228 million units. November's increase in homebuilding followed two straight monthly declines.
Building permits increased 5.0 percent to a rate of 1.328 million units in November, powered by a jump in the volatile multi-family housing sector.
Economists polled by Reuters had forecast housing starts slipping to a pace of 1.225 million units last month.
The housing market is being constrained by higher mortgage rates as well as land and labor shortages, which have led to tight inventories. While house price inflation has slowed, it continues to outpace wage growth, sidelining some first-time homebuyers.
Continued housing market weakness could be flagging a slowdown in the overall economy. Residential investment contracted in the first three quarters of this year, the longest stretch since mid-2009.
Homebuilding investment is expected to have declined again in the fourth quarter. Economists believe the soft patch will persist through the first half of 2019 as the sector continues to adjust to higher mortgage rates.
The 30-year fixed mortgage rate has increased more than 60 basis points this year to about 4.63 percent, according to data from mortgage finance agency Freddie Mac. With the Federal Reserve expected to raise interest rates on Wednesday for the fourth time this year, mortgage rates are likely to remain high.
Single-family homebuilding, which accounts for the largest share of the housing market, dropped 4.6 percent to a rate of 824,000 units in November, the lowest level since May 2017. It was the third straight monthly decline in single-family home building.
A survey on Monday showed confidence among single-family homebuilders dropped to more than a 2-1/2-year low in December, with builders reporting that "consumer demand exists, but customers are hesitating to make a purchase because of rising home costs."
Single-family starts in the South, which accounts for the bulk of homebuilding, jumped 6.8 percent last month. Single-family homebuilding tumbled 9.5 percent in the Northeast and plunged 24.4 percent in the West. Groundbreaking activity on single-family homes dropped 3.2 percent in the Midwest.
Permits to build single-family homes edged up 0.1 percent in November to a pace of 848,0000 units. These permits are now above the level of single-family starts, suggesting some pickup in homebuilding is likely in the months ahead.
Starts for the multi-family housing segment soared 22.4 percent to a rate of 432,000 units in November. Permits for the construction of multi-family homes rose 14.8 percent to a pace of 480,000 units.