A larger-than-forecast decline in new-home construction reflected the weakest pace of building in the South since October 2015, showing the fallout from Hurricanes Harvey and Irma, according to government figures Wednesday.

Residential starts dropped 4.7% month-to-month (the estimate was -0.4%) to a 1.13 million annualized rate (the estimate was 1.18 million), the slowest in a year. Starts in the South slumped 9.3% to 527,000; and also fell in the Midwest and Northeast.

Single-family starts declined 4.6% and multifamily construction was down 5.1%. Permits, a proxy for future construction, decreased 4.5% to a 1.22 million rate (the estimate was 1.25 million).

Home starts in September reflect a slump in the South

Similar to other recent economic data, figures on housing starts have the potential to remain volatile for several months. The widespread damage from the hurricanes also may cause a further shortage of workers and ready-to-build lots, along with lingering supply-chain delays and higher prices for raw materials.

Only homes that have to be completely rebuilt, for which a permit is issued as new construction, are counted as a start, while partially damaged dwellings are considered repairs.

At the same time, history shows activity typically rebounds in later months as rebuilding efforts begin in areas affected by major storms. In a hopeful sign that concern over fallout from the hurricanes has been alleviated, a gauge of homebuilders' confidence rebounded to a five-month high in October.

Prior to the weather-related distortions, the steady job market and still-low mortgage costs were sustaining demand for housing. Economists expect residential construction will keep expanding, albeit gradually.

Single-family home starts fell to an 829,000 rate in September, the slowest since May, from 869,000 the prior month. Groundbreaking on multifamily homes, such as apartment buildings and condominiums, decreased to an annual rate of 298,000, the weakest in a year; data on these projects can be volatile.

The report shows a wide margin of error, with a 90% chance that the September figure was between a 12.8% drop and a 3.4% gain. The report was released jointly by the Census Bureau and Department of Housing and Urban Development.

Bloomberg News