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Housing Starts Fall Back in November

After surging more than 27 percent and reaching the fastest pace in nine years during October, housing starts in November fell back, according to the Commerce Department. Housing starts plummeted by 18.7 percent to an annual rate of 1.090 million from the revised October estimate of 1.340 million. Economists had expected housing starts to dip to a rate of 1.230 million from the 1.323 million originally reported for the previous month.

Multi-family starts plunged by 45.1 percent to a rate of 262,000, while single-family starts fell by 4.1 percent to a rate of 828,000.

The report also showed a steep drop in housing starts in the Northeast, which slumped by 52.1 percent. Housing starts in the West also tumbled by 22.1 percent, while starts in the Midwest and South slid by 14.2 percent and 9.3 percent, respectively.

Both the single-family and multifamily categories declined, and the pace in all regions deteriorated. While the single-family category is still ahead of the building pace of a year ago, the multifamily category is not.

Building permits, more precisely measured than starts and an indication of future building, were mixed in November, with single-family up and multifamily lower; but the three-month trend in permits was positive for both. Permits trended higher in all regions for the month, and the three-month trend in authorizations is ahead of year-earlier levels.

Homebuilder sentiment reached an 11-year high in December, on optimism that the new administration will reduce regulations, according to HS Global Insight U.S. Economist Kristin Reynolds. "However, when homebuilders are this optimistic, they are typically starting more homes," said said. "In fact, except for a few months in mid-2013, September showed the weakest annual rate of starts compared to the index of homebuilder sentiment since 1985, [the first available data on homebuilder opinions about the market]. November was not much better."

As expected, the Federal Reserve raised the federal funds rate at its December meeting, and signaled three more rate increases during 2017. Mortgage interest rates increased following the election, both in anticipation of the rate increase and fiscal stimulus from the new administration. This reading on housing starts will lower the estimate of real residential investment in the fourth quarter, but expect housing starts to continue their measured expansion.