US Housing Starts Drop 0.7% Even As Home Permits Rise

U.S. housing starts fell in October from the previous month, even as the number of completed homes remained the same and housing permits increased.

The Department of Commerce on Wednesday released data on residential construction that showed housing starts stood at a seasonally adjusted annual rate of 1.52 million. This was below the 1.576 million forecast and 0.7% lower than the number of starts in September, but 0.4% above the same period in October 2020.

The number of building permits was reported to be 1.65 million, 4% above September's number and about 3.4% above the same time last year.

These numbers come at a time of high demand in the U.S. housing market that is not being met by strained levels of supply. The Mortgage Bankers Association (MBA) found that the number of new mortgage applications fell by an unadjusted 15.2% from last year even as it was 6% higher than in September.

MBA’s chief economist Joel Kan said that this data represents the "strong pace since January 2021" of new applications, but these mortgages were largely taken out for yet-to-be-completed homes than existing properties. This, he added, was complicated by the supply problems that are still frustrating homebuilders nationwide.

"Homebuilders still face delays and challenges from supply-chain bottlenecks and rising costs. Overall construction costs, as measured by the Producer Price Index (PPI), recorded an annual increase of 12.3% in October, which is almost five times the average annual change,” said Kan in an MBA press release.

Housing prices have soared during the pandemic, owing to the supply-chain bottlenecks that haunt nearly every sector of the U.S economy, as well as a pre-existing labor shortage. This has all been caused or exacerbated by the COVID-19 pandemic.

Amidst this surge in prices, many homebuilders and potential buyers have been cutting back on their demand for new homes. This has filtered into the demand for refinancing of existing mortgages, which the MBA’s seasonal index showed fell 2.8% last week compared with the previous week.

It found that mortgage interest rates are continuing to climb upward, pushing demand for refinancing down by 5%. That's 31% lower than a year earlier.

However, homebuilder confidence recently hit a six-month high in November, according to the National Association of Home Builders. High prices and continuing declines in the price of building materials appear to be responsible for keeping this optimism alive.