Housing starts slumped in August from the highest level in almost seven years, reflecting a setback in multifamily projects that are at the forefront of the rebound in U.S. real estate.
Beginning home construction fell 14.4 percent, the most since April 2013, to a 956,000 annualized rate following July’s revised 1.12 million pace that was the strongest since November 2007, the Commerce Department said today in Washington. Work on apartments and condominiums, which tends to be volatile, dropped 31.7 percent after jumping 44.9 percent in July.
As more Americans decide that homeownership isn’t for them because wage growth is slow and qualifying for mortgages remains difficult, builders have focused on putting up more rental units, which means the industry will see bigger swings month to month. The average number of multifamily units started over the past 12 months was the most since 2006.
“There’s been a fairly compelling recovery in multifamily construction because people need apartments to live in; on the other hand, there’s been significantly less recovery in the single-family market,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. The construction figures “will continue to improve, but it’s going to continue to be an erratic improvement.”
Over the past 12 months, construction has been started on an average of 349,000 multifamily structures, the most since the same period ended July 2006.
Starts of single-family properties declined 2.4 percent to a 643,000 rate in August from the previous month. They’ve averaged 630,000 over the past 12 months. While that’s up from the depths of the economic slump, excluding the recession and subsequent recovery, the reading would be the weakest since 1982.
A slowdown in homeownership in the wake of the housing bubble that coincided with the last recession points to further gains in construction of rental properties, according to McCarthy.
Another report today showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign the labor market continues to strengthen. Jobless claims decreased by 36,000 to 280,000 in the week ended Sept. 13 from 316,000 in the prior period, according to the Labor Department. The median forecast of economists surveyed by Bloomberg called for a decrease to 305,000.
Stocks rose for a third day, sending the Dow Jones Industrial Average to a record, as investors speculated interest rates will remain low. The Dow advanced 0.5 percent to 17,249.82 at 12:46 p.m. in New York.