U.S. homebuilding got a boost in October with a rebound in multi-family housing projects, but construction of single-family homes dropped for a second straight month, suggesting ongoing weakness at the hands of rising borrowing costs.
The U.S. Commerce Department said on Tuesday that starts for multi-family housing surged 10.3% to a rate of 363,000 units in October. However, construction of single-family homes, which accounts for the lion's share of the housing market, dropped 1.8% to a rate of 865,000 units.
Separately, the Commerce Department said building permits -- an indication of future homebuilding activity -- slipped 0.6% to a rate of 1.263 million units in October.
Steady gains in borrowing costs, specifically mortgage rates, combined with tightening lending standards as well as both land and labor shortages have been taking a toll on U.S. housing construction activity.
The 30-year fixed mortgage rate is currently at 4.94%, close to a seven-year high, according to mortgage finance agency Freddie Mac.
The report follows separate numbers released on Monday, Nov. 19, showing confidence among U.S. homebuilders plummeted the most since 2014 as higher borrowing costs curtail demand.
The National Association of Home Builders/Wells Fargo Housing Market Index dropped eight points in November to 60, its lowest level since August 2016, according to a report Monday.
Amid the news, the SPDR S&P Homebuilders ETF (XHB) posted a moderate drop on Tuesday, augmenting declines in the prior week that came on the back of the U.S. 10-year Treasury yield breaking above 2.8%. The 10-year Treasury yield guides mortgage rates.