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U.S. housing starts rose last month on a bounceback in multifamily building, but underlying figures signal weakness in the construction pipeline.

Housing starts climbed 1.5% in October from the prior month to a seasonally adjusted annual rate of 1.228 million, the Commerce Department said Tuesday. The growth was due to a rebound in construction of buildings with two or more units. Starts fell in October for single-family construction.

Residential building permits, which can signal how much construction is planned, dropped 0.6% from September to an annual pace of 1.263 million last month. Permits were down for single-family homes as well as buildings with multiple units.

Consumer optimism toward home buying is waning and builders are beginning to take note, said Danielle Hale, chief economist for realtor.com, in a note to clients.

“Looking ahead, starts could slip further if builders believe the consumer pause will continue and they adjust production accordingly,” Ms. Hale said, pointing to rising home prices and mortgage rates as hurdles to home buying.

Cost increases for materials are also adding to builders’ challenge of constructing homes at lower-price points, economists say.

Housing-starts data are volatile from month to month and can be subject to large revisions. October’s 1.5% increase for starts came with a margin of error of 12.9 percentage points.

The broader trend shows some pickup this year, as starts grew by 5.6% in the first 10 months of 2018 compared with the same period a year earlier. This growth is modest, though, given strong economic growth this year and a historically low unemployment rate—conditions that normally tend to buoy demand for new homes. Factors such as rising prices and borrowing costs are locking some would-be buyers out of the market.

Builders are taking a cautious stance given the Federal Reserve’s plan to continue gradually raising interest rates, the National Association of Home Builders said Monday. The trade group’s gauge of U.S. home-builder confidence fell sharply in November, dragged down by heightened concerns about affordability in the housing market.

The National Association of Realtors releases data on October existing-home sales, which account for the bulk of the market, Wednesday.

The post U.S. Housing Starts Increased in October appeared first on Real Estate News & Insights | realtor.com®.

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