Monday the U.S. Commerce Department released figures showing that new home starts fell in October, following a 0.8% increase in September. While new construction is ebbing slowly, however, consumers continue to refinance at near record low mortgage rates, reducing their monthly house payments and pulling billions of dollars out of home equity for other spending.
October housing starts fell 1.3% to an annual rate of 1.552 million but remained 1% above last October. Homes completed, under construction and permitted but not yet started are still near the high values for the year, but new construction permits have dropped sharply for the last several months. Permits were 5% less than starts in October, suggesting continued decline in new housing starts in the next few months.
Mortgage refinancing has tripled. Refinancing a $100,000, 20-year loan with a 2% lower interest rate cuts monthly payments - after the reduced income tax deduction - by about $100. This is the extra purchasing power that is keeping consumer spending growing slowly.