Washington, DC, Nov. 20--Housing construction lost momentum in October, dropping 11.4%, the biggest drop since 1994. Even with the sharp decline, which came after the level of housing construction shot up to a 16 year high in September, the number of housing units for which builders broke ground in October was still considered to be in the healthy zone.
Builders began work on 1.60 million housing units, at a seasonally adjusted annual rate, representing a 11.4% decline in October from the previous month, according to the Commerce Department.
While October's housing activity level was weaker than analysts were expecting, economists predicted September's blistering pace would not be sustained. Housing construction jumped by 11% in September to a rate of 1.81 million units, the highest level since December 1986.
Construction of new single family homes fell 7% in October to a rate of 1.35 million. Work on apartments, condominiums and other multifamily housing fell 31.4% to a rate of 221,000 last month.
Even with the slowdown in construction in October, the housing market remains in good shape. Stoked by low mortgage rates, home sales are expected to post records this year.
The average rate on a 30 year fixed rate mortgage dropped to 5.94% last week, the lowest level since mortgage giant Freddie Mac began tracking rates in 1971. It marked the seventh time this year that rates hit a new low.
Low mortgage rates this year have been feeding a refinancing boom. The extra monthly cash that consumers are saving by refinancing their mortgages at lower interest rates is helping to support consumer spending, which has been the main force keeping the economy going this year.
Those factors have helped to offset some negative forces, including the turbulent stock market.
Against this backdrop, home builders are optimistic about sales for November as well as within the next six months, according to the National Association of Home Builders.
³With long term mortgage rates slipping below 6%, builders are certainly finding buyers who can qualify to purchase homes in most price ranges right now,² says the association's president, Gary Garczynski.
Builders in some areas, however, are reining in sales expectations for homes in the top price ranges as portfolios of affluent prospective buyers took a big hit during the stock market slide this year, Garczynski said.
Wanting to energize the economic recovery, the Federal Reserve earlier this month cut a key interest rate by a bold half a percent to a 41 year low of 1.25%. That marked the Fed's first rate reduction this year and the 12th since January 2001.
By region, in the Northeast, housing construction in October fell 18.8% from the previous month to a rate of 143,000. In the Midwest, construction dropped by 19.5% to a rate of 301,000, and in the South the number of housing projects under way went down by 14.3% to a rate of 701,000. But in the West, housing construction rose 3.6% to a rate of 458,000.
