US housing starts fall unexpectedly in September

Housing starts dropped by 9.0% month-on-month to reach an annualised pace of 1.047m, according to the Department of Commerce.

The consensus forecast was for an annualised pace of starts of 1.173m.

In comparison to a year ago, starts declined by 11.9%.

Nevertheless, weakness was concentrated in the multi-family home segment, falling by 38.9% to 250,000, while starts for single family homes in fact grew 8.1% to 783,000.

Similarly, housing permits, which are widely considered to be a lead indicator for the sector, increased by 6.3% month-on-month to 1.225m (consensus: 1.16m) and by 8.5% versus a year ago.

Authorisations for single-family homes grew by 0.4% over the month to 739,000, with those for buildings with five or more units ran at a pace of 449,000.

"Housing starts tumbled 9.0% in September, a marked deviation from the expected increase of 2.9%. However, all of the weakness occurred in the volatile multi-family sector and seemed to reflect a large dose of random volatility.

"Although we are not alarmed by the drop in multi-family starts, we suspect that activity is close to the peak for the current cycle. [...] Excluding the weak results for September, multi-family starts averaged 396,000 in the first eight months of the year, nearly identical to the results from 2015," Michael Moran at Daiwa said in a research note sent to clients.

Multi-family housing permits gained 16.8% month-on-month, Barclays Research's Blerina Uruci said.

"Given this, we see the sharp fall in starts in September as unexpected and anomalous. We expect to see a rebound in housing starts as the building permits begin to come on line," Uruci said.

As of 1353 BST the yield on the benchmark 10-year US Treasury note was up by three basis points to 1.76%.