Housing Starts To Cool In October

November 17, 2005

The robust housing market showed early signs of cooling off in October as the pace of new-home construction and the issuance of building permits both declined, according to Commerce Department figures released today.

Total housing starts were down 5.6 percent for the month to a seasonally adjusted annual rate of 2.014 million units. The October pace was 2.3 percent below a year earlier, but starts were up by 5.3 percent on a year-to-date basis.

Single-family home construction dipped 3.7 percent to 1.704 million units for the month. This was 2.3 percent above the pace of a year ago, with single-family starts up on a year-to-date basis by 6.3 percent.

“Builders continue to operate at a very healthy pace, but we are well aware that some slowing of demand is inevitable following the record-breaking sales activity that has prevailed recently,” said Dave Wilson, president of the National Association of Home Builders (NAHB) and a custom home builder from Ketchum, Idaho. “NAHB’s November survey of single-family builders showed a significant slowdown of sales activity.”

“It appears that housing starts and permit issuance hit their peaks during the third quarter and that housing market activity has begun to cool,” said NAHB Chief Economist David Seiders. “Rising house prices and interest rates have combined to erode housing affordability and consumers also appear to be concerned about the cost of heating their homes this winter.”

“This cooling down period should extend into 2006 but not lead to a major contraction in the housing markets,” Seiders continued. “NAHB’s forecast shows a 5.5 percent decline in housing starts for 2006, basically retracting the increase expected for this year.”

Regionally, construction of new homes and apartments for the month was down 7.5 percent in the Northeast, 10.5 percent in the Midwest, 10.8 percent in the West and 0.5 percent in South.

Multifamily housing starts dropped 14.8 percent for the month to a seasonally adjusted pace of 310,000 units. This was 21.7 percent below the pace of a year ago.

Issuance of total building permits decreased 6.7 percent to a seasonably adjusted rate of 2.071 million units for the month. Single-family permit issuance was down 4.9 percent to 1.681 million units while the pace of multifamily permit issuance dropped 13.7 percent to 390,000 units. The backlog of unused permits declined by 4.8 percent in October, following a substantial increase during the year.

Source: NAHB

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