WASHINGTON—New-home construction sank in October, as builders dialed back on building of apartments and condominiums that drove demand through much of the summer.
Housing starts fell 11% from a month earlier to a seasonally adjusted annual rate of 1.06 million in October, the Commerce Department said Wednesday. Starts of single-family homes, which make up nearly two-thirds of the market, fell 2.4%. Construction of multifamily units, including apartments and condominiums, plunged 25.1%.
New applications for building permits, a bellwether for future home construction, rose 4.1% to a seasonally adjusted annual rate of 1.15 million. Single-family permits rose to their highest level since December 2007, and were up in every region but the Northeast.
Economists surveyed by The Wall Street Journal had expected October housing starts to reach a rate of 1.16 million, and building permits to hit a rate of 1.14 million.
Home construction figures can be volatile, and are typically revised. Wednesday’s report showed new home starts increased 6.7% in September, up slightly from a previously reported 6.5% gain.
Wednesday’s housing starts figures also came with a 13.5% margin of error.
“Looking through the month-to-month volatility, we expect starts to increase at a sustained but moderate pace, supporting the housing recovery and construction activity,” Barclays economist Blerina Uruci said in a note to clients.
The housing market has been building momentum this year after a lackluster performance in the early years of the recovery. Still, construction activity is well below its prerecession levels, which economists suggest may be holding back sales of new homes, constraining the supply of homes on the market and in turn pushing up prices.
Labor shortages have also plagued construction companies, making it hard to get homes off the ground.
New-home sales fell in September and were weaker in August than previously estimated, the Commerce Department said in a separate report last month. But existing home sales climbed in September, and put the market back on pace for its best year since 2007, the National Association of Realtors said in October.
The trend in housing starts has also been steadily improving. Starts have averaged 1.12 million over the past three months, versus an average 1 million in 2014.
“More broadly, the housing sector continues to enjoy healthy demand, though perhaps home buyers have taken a little step back due to the firmness of prices this year,” Stephen Stanley, chief economist for Amherst Pierpont Securities, said in a note to clients.
U.S. home builders also appear slightly less optimistic this month. The National Association of Homebuilders’ confidence index slipped unexpectedly to 62, the group said Tuesday, down three points from its October reading but still near a 10-year high.
Wednesday’s report showed housing starts rose a seasonally adjusted 10.2% in the Northeast and 15% in the Midwest. Starts were down 18.6% in the South and 16.2% in the West.
Despite the challenges that most builders encountered with labor shortages and delays from an unusually wet spring in much of the south, David Weekley Homes registered 10% more construction starts in October than a year earlier. Houston-based Weekley, which built roughly 3,000 homes in 12 states last year, appears to have finally worked through the delays it incurred early this year when persistent rainfall in Texas and elsewhere in the south stymied efforts to get home lots ready for construction.
“A lot of our communities were delayed during the year, and we’re getting more of them open (now),” David Weekley Chief Executive John Johnson said. “Other than Houston, all of our markets are showing increases.”
Numerous other builders have reported declines in sales and construction starts in Houston this year due to the dampening effect depressed oil prices have had on job growth there. Weekley’s sales are down 15% so far this year in Houston from the same period last year.
Meanwhile, other multistate builders reported a rebound in activity in October after a slight lull in September. Taylor Morrison Home Corp. reported a 15% increase in October sales from a year earlier, while CalAtlantic Group posted an 8% increase. D.R. Horton Inc. reported “solid” sales in October, and Meritage Homes Corp. noted that its October sales were up more than 20%.
At Cottage Advisors, a closely held builder in the Northeast, crews started construction of four homes in October in comparison to two a year earlier. The builder anticipates building 80 homes in Massachusetts, Maine and Canada this year in all.
Cottage Advisors Senior Vice President Chip Hall said September was a bit slow for the builder, but October rebounded. “In October, everything started jumping again,” Mr. Hall said. “Contracts were back up. Visits to our sites were up. It’s like the fall season just got started a little late this year.”