LIVE MARKETS-Housing start headwinds: Hurricanes yesterday, deportations and tariffs tomorrow

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HOUSING START HEADWINDS: HURRICANES YESTERDAY, DEPORTATIONS AND TARIFFS TOMORROW

Groundbreaking on new U.S. homes USHST=ECI decreased by 3.1% in October to 1.311 million units at a seasonally adjusted annualized rate (SAAR).

The number fell 1.4% shy of consensus and adds salt in the wound of September's sharply revised 1.9% contraction (much worse than the previously reported 0.5% dip).

On closer inspection, the report from the Commerce Department shows a rather steep 6.9% reduction in single-family housing starts, which handily wiped out the 9.6% increase in multi-family projects, a volatile segment which accounts for a much smaller slice of the total pie.

By region, hurricanes likely contributed to the 8.8% drop in housing starts in the South, while groundbreaking in the Northeast plunged 32.9%.

"The dip in housing starts mostly reflects a 61K hit to single-family starts in the South due to recent hurricanes, explaining the vast majority of the 72K national drop," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

Building permits USBPE=ECI, considered among the most forward-looking housing indicators, edged down 0.6% to 1.416 million units SAAR, marking a deceleration from the prior month's 3.1% drop and landing about 1% shy of analyst expectations.

Single family permits actually increased by 0.5%, but paperwork issued for multi-family construction dropped by 3%.

"Relatively high inventory of new homes for sale suggests that single-family construction probably will flatline at best over the coming months, and could easily start falling back again soon if mortgage rates remain around their current levels," Allen adds.

The report might seem at odds with National Association of Realtors, which delivered its highest homebuilder sentiment reading in seven months on Monday, largely based on expectations that President-elect Trump will implement favorable regulatory changes.

But Nancy Vanden Houten, U.S. lead economist at Oxford Economics, offers a bit of skepticism regarding whether Trump policy will be the boon to the sector builders hope it will be:

"Builders continue to face other headwinds, including labor shortages and high building material costs," Houten writes.

Mass deportations seem unlikely to help the labor shortage issue, as "foreign-born workers who are not citizens comprise about 18% of the construction work force," Houten adds. "Also, the cost of some building materials could rise if Trump imposes widespread tariffs."

(Stephen Culp)

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