GoldPrice.

The rate of new homes being constructed increased in October as builders broke ground on residential properties, but annually housing starts are in decline. The housing market is often seen as a preliminary indicator for the entire economy, leading to concerns that the current expansion is not sustainable and we are seeing the beginning of an economic downturn.

However, it is too soon to say for certain. The temporary impact of hurricane season was stronger than expected and the construction industry shows ongoing steady demand for construction of new homes.

Key Takeaways

• Residential housing starts increased 1.5% in October to an annualized rate of 1.23 million, 20,000 more than last month.
• Consensus expectations had predicted a 1.6% increase.
• These figures are 1.8% lower than they were in September for the previous month, and 2.6% lower than this time last year.
• Single-family homes are seeing a pronounced decline with a 1.8% decrease.

The report indicates that the economy is strong enough to foster continued demand for houses thanks to a tight labor market and increased take-home pay due to tax cuts which is helping to offset the effects of heightened interest rates.

High interest rates have nevertheless contributed to an overall decline in the US housing market with a 4% drop in mortgage applications recently as mortgages become less affordable for would-be homeowners and the biggest sentiment drop in homeowner building since 2014.

In the South, housing starts rose 4.7% to an annualized rate of 596,000. In the Midwest housing starts are at a five-month high and in the West they are declining. The Northeast region registered the lowest rate of housing starts since May 2017 at 87,000.

Single-family homes fell 1.8% to 865,000 throughout the country. Data on these types of homes is held in regard as an indicator because single-family homes are usually built for purchase, not for rent, making an increased rate a vote of confidence in the economy and a decreased rate the reverse.

Building permits, another important indicator of construction activity, rose 0.6% to an annualized 1.63 million, and are down 6% compared to last year.

Expert Outlook

UBS investment banking analysts said:

“With rising mortgage rates and increases in house prices that continue to outstrip disposable income, housing affordability has dropped notably since peaking in 2012. But housing remains relatively affordable on a historic basis and the decline in affordability does not seem to fully explain the slowdown. Further, high prices should lead to increases in housing starts, but that has not occurred.”

The analysts went on to note that the weakness in housing this year is not fully explained as of yet and predict a general economic slowdown over international trading policies with housing being affected through Q1 2019.

Analysts from Action! Economics said: “We likely saw a September and October impact from hurricanes Florence and Michael, and we may see November weakness due to the fires in California, though housing entered the period on a weak trajectory. We should see a lift for all the housing data from disaster rebuilding as we approach 2019.”

Market Reaction

Gold prices have recovered to recent highs again following a decline in equity markets and international concern and uncertainty regarding the ongoing trade war. Spot gold is currently trading at $1,224.15/oz with a 0.08% increase while December Comex Futures are trading at $1,224.20/oz and down 0.09%.