Builders started construction at a seasonally adjusted annual rate of 1.03 million homes and apartments last month, the Commerce Department reported Tuesday. That was a decline of 1.6 per cent from October when construction activity had posted a 1.7 per cent gain.
The weakness last month came from a 5.4 per cent fall in construction of single-family homes, which offset a 6.7 per cent rise in the more volatile apartment sector.
Applications for building permits were also down in November, falling 5.2 per cent to a seasonally adjusted annual rate of 1.04 million. Analysts are still looking for housing to regain momentum in 2015, believing that strong increases in employment will help boost home sales.
Economists called the November decline in construction disappointing but said part of the drop was probably caused by cold and snowy weather in many parts of the country. It was the coldest November in 14 years.
Jennifer Lee, senior economist at BMO Capital Markets, noted that October construction activity was revised up by 3.6 per cent and that September, October and November all showed construction above the 1-million mark.
She said going forward strong job growth, low mortgage rates and easier lending standards should provide continued support for the housing market.
All regions of the country showed gains in November except the South, which accounts for almost half of all new home activity. That region saw a 19.5 per cent drop in construction. Construction showed the biggest jump in the West, an increase of 28.1 per cent, followed by gains of 14.4 per cent in the Midwest and 8.7 per cent in the Northeast
Analysts believe the strong gains in employment this year will give consumers the confidence to buy homes and translate into moderate housing gains in 2015. While still a long way from the boom years of the previous decade, housing has been posting a moderate recovery over the past two years.
The National Associated of Home Builders/Wells Fargo builder sentiment index took a slipped slightly in December but remains in positive territory. The index reading in December was 57, down one point from a reading of 58 in November.
Any reading above 50 indicates that home builders view sales conditions as good, rather than poor.
New home sales reached an annual rate of 458,000 in October, the highest point since May. Home prices continued to climb, increasing to a median price of $305,000 in October, up 16.5 per cent from a year ago.
The gains in home prices have held back some activity, particularly among first-time home buyers. Many lack the savings and strong credit history needed to afford a home. Tighter credit standards for potential home buyers and flat wage gains have also acted to dampen home sales.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenues, according to NAHB data.