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Home starts fall from 12-year high on multifamily drop

New-home construction in September pulled back from a 12-year high though the key single-family category was stable, signaling the housing market is firming amid low mortgage rates and steady demand.

Residential starts fell 9.4% to a 1.26 million annualized rate on weakness in the multifamily category after an upwardly revised 1.39 million pace in the prior month, according to government figures released Thursday that missed estimates in Bloomberg's survey. Permits, a proxy for future construction, dropped 2.7% to a 1.39 million rate that exceeded estimates.

Groundbreakings for single-family properties proceeded at the fastest pace since January. That gain was offset by a 28.2% drop in new construction of apartment buildings and condominiums, a category that tends to be volatile.

The report reflects some cooling as starts pull back from the best pace since 2007 the prior month. Building has stabilized amid low mortgage rates, higher wages and a tight labor market, with housing showing signs of positive momentum after remaining a drag on economic growth since 2017.

Private data on Wednesday showed homebuilder sentiment rose in October to the highest since February 2018 as measures of prospective buyer traffic, sales and demand all improved.

Data out next week are forecast to show existing-home sales, which make up the majority of the housing market, eased in September along with new-home sales.

A separate report Thursday indicated that the labor market remains generally healthy, as jobless claims edged up last week but were still low by historical standards. On the other hand, a Federal Reserve Bank of Philadelphia regional factory index fell to a four-month low, adding to signs of weakness in manufacturing.

Single-family starts rose 0.3% to a 918,000 pace while such permits were up 0.8% to 882,000, the most since early 2018. Starts decreased across all four national regions, led by a 34.3% slump in the Northeast.

About 168,000 homes were authorized but not yet started, the most since May, indicating a steady supply for the months ahead.

The report, produced jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, has a wide margin of error and can be subject to sizable revisions.

Bloomberg News