Economic Watch: Home Starts Drop, Building Permits at Highest Level Since 2008

Housing starts in the U.S. fell in October, but an indicator of future building is at a more than six-year high, according to a new Commerce Department report.

The 2.8% drop in overall housing starts from the month before was led by a 15.4% decline in construction of multi-family units. It followed a 14.9% increase in September. Single-family home starts, in contrast, were up 4.2% in October over September. The overall rate was 1.009 million.

Total September home starts were revised upward to a 7.8% increase from August after an originally reported 6.3% gain.

The number of new home building permits issued in October, an indicator of future construction, gained 4.8% from September for an annual rate of 1.08 million. This includes a 1.4% gain in the single-family category, its best level in nearly a year, while the number of multi-family permits surged 10%.

Compared to October 2013, new home starts last month increased 7.8%, while the number of building permits issued rose 1.2%.

Housing starts have been volatile for the past year. They hit a post-recession high last fall before easing amid rising interest rates and a harsh winter. Up again in the spring, starts have since been up-and-down, and have not surpassed last fall's peak.

“Following yesterday's rise in the National Association of Home Builders Index, there appears to be a significant amount of confidence amid home builders breaking ground on new projects as low financing costs and improvement in the labor market are expected to bring new demand for housing,” said Sterne Agee Chief Economist Lindsey Piegza.

“While there has been improvement in sales since a weak start to the year, demand has hardly been robust. Minimal income, lackluster savings, and more stringent borrowing restrictions are in some cases outweighing historically low borrowing costs.”

She noted that after a surge in buying activity in mid-2013 sparked by the Federal Reserve’s talk of tapering its economic stimulus initiatives, demand slipped noticeably and has since been unable to recapture the highs of 2013. “In the end, without jobs and income growth, consumers remain restrained, translating into positive, but modest demand,” Piegza said.