Hurricanes Harvey and Irma put a damper on U.S. housing construction in September while a decline in building permits raised fears that the housing market recovery is stalling.
The Commerce Department said housing starts fell at a 4.7% month-over-month clip fell to a seasonally adjusted annual rate of 1.127 million, the lowest level since September 2016 and the fifth month of the past six to show a decline.
In the hurricane-ravaged South, groundbreaking tumbled 9.3% to the lowest level since October 2015, with single-family home building in the region plunging 15.3% to more than a one-year low.
Building permits dropped 4.5% to a rate of 1.215 million units in September, with permits in the South dropping 5.6%. Areas in Texas and Florida impacted by the storms accounted for about 13% of U.S. building permits in 2016.
Economists had forecast housing starts falling to a rate of 1.175 million units last month and building permits slipping to 1.250 million units. “September’s drop in starts underscores the importance of Florida and Houston,” Mark Vitner, a senior economist at Wells Fargo Securities, told Reuters.
The storms hit as residential construction was already facing shortages of land and skilled labor as well as rising costs of building materials. Housing starts were also down in the Northeast and Midwest last month, indicating weather was not solely to blame for the September slump.
“Housing activity has shifted from leading the economic expansion to now just following it, at best,” said Michael Gregory, deputy chief economist at BMO Capital Markets in Toronto.
But on a more positive note, the September housing report also showed single-family home starts, while down for the month, were up 9.1% for the year to date compared to the same period last year.
According to MarketWatch, “A shift from apartments to single-family homes is a sign of a stronger economy and housing market, in part because nearly all apartments are built for rent, and most houses are built for purchase. Houses are also more labor-intensive to construct, so they contribute more to economic growth.”