U.S. housing starts in October fell to a seven-month low as single-family home construction in the South tumbled, but a surge in building permits suggested the housing market remained on solid ground.
Groundbreaking dropped 11 % to a seasonally adjusted annual pace of 1.06 million units, the lowest level since March, the Commerce Department said on Wednesday.
Still, October marked the seventh straight month that starts remained above 1 million units, the longest stretch since 2007. That suggested a sustainable housing market recovery.
"We're confident that the broader housing market recovery will continue," said Tom Wind, executive vice-president of home lending at EverBank in New York.
Rapidly rising household formation, mostly driven by young adults leaving their parental homes and a strengthening labor market, is supporting the housing sector.
Although residential construction accounts for just over 3 % of gross domestic product, housing has a broader reach in the economy, with rising home prices boosting household wealth and, as a result, supporting consumer spending.
Housing has contributed to GDP growth in each of the last six quarters and is absorbing some of the slack from a weak manufacturing sector.
Economists polled by Reuters had forecast housing starts falling to a 1.16 million-unit pace last month.
Prices of U.S. Treasuries briefly trimmed losses after the data. U.S. stock index futures added to gains, while the dollar was slightly weaker against a basket of currencies. Groundbreaking on single-family home projects, the largest segment of the market, fell 2.4 % to a 722,000-unit pace. Single-family starts tumbled 6.9 % in the South, where most home building takes place. Single-family starts, however, rose in the Northeast, the Midwest and the West.
Starts for the volatile multi-family segment plunged 25.1 % to a 338,000-unit pace.
Building permits increased 4.1 % to a 1.15 million-unit rate last month. Single-family building permits rose 2.4 % last month to their highest level since December 2007. Single-family permits in the South also hit their highest level since December 2007.
Multi-family building permits increased 6.8 %.
A survey on Tuesday showed home builders' confidence slipped in November from a 10-year high, but remained at levels consistent with a sustained housing market recovery. Builders said land and labor shortages were constraining activity.
Even as builders were worried about sales conditions now and over the next six months, the measure of buyer traffic touched its highest level since October 2005.