The residential real estate recovery is best described as plodding, with the industry taking a step back in November for the first time in three months.
Housing starts declined 1.6 percent, the first drop since August, to a 1.03 million annualized rate from a revised 1.05 million pace in October that was stronger than previously estimated, figures from the Commerce Department showed Tuesday in Washington. The decrease was led by a plunge in the South as other areas registered gains.
Building permits also fell last month, indicating a surge in construction is probably not in the cards for the immediate future. One positive aspect is that the recent turmoil in financial markets has pushed down interest rates, which combined with a strengthening job market, means home buying will be within reach for more Americans next year.
“All the conditions for stronger residential investment are in place for 2015," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, who forecast starts would slow to a 1.03 million pace. “An improving job market is going to do wonders for the housing market."
Stocks rose as energy shares rebounded with oil prices before a decision Wednesday by Federal Reserve policymakers. The yield on the 10-year Treasury note, a benchmark for mortgage rates, dropped, almost touching 2 percent, as investors sought safer assets.
Plunging oil prices caused inflation in Britain to cool in November to the lowest level in more than a decade as transportation costs tumbled, another report showed Tuesday. In China, a factory gauge fell in December to a seven-month low, a sign the central bank will need to ease monetary policy further to stem a slowdown in growth.
The median estimate of 76 economists surveyed by Bloomberg projected U.S. November housing starts would come in at a 1.04 million rate. Estimates ranged from 900,000 to 1.1 million.
The October reading was revised up from a previously estimated 1.01 million rate. Housing starts exceeded a 1 million pace in each of the past three months, the first time that's happened since early 2008.
Building permits declined 5.2 percent in November to a 1.04 million annualized rate after an October pace of 1.09 million, Tuesday's report showed. They were projected to fall to 1.07 million within a range of 1.01 million to 1.1 million, according to the Bloomberg survey.
Construction of single-family houses decreased to a 677,000 rate, while work on multifamily homes, such as apartment buildings, climbed 6.7 percent to a 351,000 rate. The pace of such projects is often volatile.
Only the South showed a decrease in starts, plunging 19.5 percent in November from the prior month, the biggest drop for the region since June. The West jumped 28.1 percent, the most since December 2012, on a surge in multifamily projects.
Some economists attributed the drop in starts to colder- than-normal temperatures. Last month was the coldest November since 2000, according to the National Climatic Data Center.
“Weather-related disruptions are temporary, and so we are not worried about this development," Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, said in a research note.
The housing recovery has progressed in fits and starts this year, with historically low mortgage rates and the strongest job gains since 1999 slowly luring buyers into the market. The average 30-year, fixed-rate mortgage was 3.93 percent in the week ended Dec. 11, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.
As the run-up in home prices decelerates and lending standards become less strict, home ownership may become more attainable for many Americans. Starting Dec. 13, Fannie Mae is allowing lower down payments for first-time buyers and permitting borrowers who are refinancing to reduce equity to 3 percent to cover closing costs.
That may help the outlook for home builders including Hovnanian Enterprises Inc., whose chief executive Ara Hovnanian called 2014 a “disappointing year for the housing industry" after fiscal fourth-quarter adjusted earnings missed expectations.
“The housing market this past year has been more challenging," Hovnanian said on a Dec. 10 conference call. “Ultimately, demographics are in our favor, and consumers should buy homes at an increased rate in the future. Simply put, the population in number of households in the U.S. is growing, and the nation is building fewer homes Tuesday than it needs to meet demand over the long term."
A report Monday showed confidence among U.S. home builders hovered in December close to a nine-year high, with the National Association of Home Builders/Wells Fargo sentiment gauge slipping to 57 from 58 in November.