October Housing starts rose 3.6% to 894,000, a four year high. Starts were strongest in the West with a 17% gain followed by the Midwest with a 6.5% gain; starts fell in the South (-6.5%) and the Northeast (-2.5%). Permits for future construction, which surged in September, slid back in October to 866,000 units, a drop of 2.7%. The strong housing starts report follows a jump in builders’ sentiment as measured by the National Association of Home Builders index which rose to 46, a six year high, from 41. Existing home sales are showing showing strength at 4.79 million units, up 2.1%, in October. Combined with other reports over the last few months, these data confirm that the housing sector is making a positive contribution to the economy after a long drought.
Hurricane Sandy, which wreaked havoc on much of the northeast at the beginning of the month, will probably dampen a lot of the November housing data. Lost selling days and travel disruptions will hurt sales of new and existing homes; starts may be lowered by lost working days throughout the region. The bigger long term impact may be increasing demand for contractors and building supplies because of the storm recovery. While the fiscal cliff will dominate the news, it is not expected to have a specific impact on housing — no one suggests that mortgage rates will rise and a repeal in the deductibility of mortgage interest is not among the tax adjustments widely discussed in the media.