This article was originally published on ETFTrends.com.
Housing starts fell more than expected, sliding by 5.3% to a seasonally adjusted annual rate of 1.201 million units last month, according to the latest data from the Commerce Department.
ITB was down 3.38%, XHB fell 2.81% and PKB dropped 3% as of 11:30 a.m. ET. The drop in housing starts was also paired with August's data being revised down to show starts rising to a rate of 1.268 million units versus the previously reported 1.282 million units.
“Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients,” said Ken Simonson, chief economist for the group, the Associated General Contractors of America.
Partly to blame for the rise in building materials is the tariff battle between the United States and China, which has increased the cost of homebuilding. Tariffs have elevated the costs of construction--materials like lumber, steel and aluminum as well as U.S. tariffs on $200 billion in Chinese imports like countertops and furniture could increase construction costs 20% to 30%.
“We’re all going to pay the price for it in terms of higher construction costs,” said Alan Banks, president of the North Carolina Home Builders Association.
In addition, existing homeowners wishing to perform renovations will also feel the proverbial pain in their pockets. As such, they will seek ways to curb costs or even abandon plans for renovations altogether.
Despite the extended bull market in U.S. equities, real estate has still been lagging the rest of the capital markets.
“Although the number of permits is still higher than starts, pointing to more activity in coming months, the overall trend in housing has clearly slowed/plateaued/leveled off,” said Jennifer Lee, senior economist for BMO Capital Markets. “In other words, expect less support from residential construction for the broader economy.”
Despite the lower-than-expected housing starts, the National Association of Home Builders’ monthly confidence index did rise by 1 point to a total of 68 in the month of October. A reading that registers over 50 is a sign of improvement.
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