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Housing starts tumble more than expected in September

US homebuildingĀ fell more than expected in September, led by a 13.1% decline in multi-unit projects, according to Census Bureau data released on Wednesday.

HousingĀ startsĀ dropped 8.1%Ā to a seasonally adjusted annual rate ofĀ 1.439Ā million units last month. Data forĀ AugustĀ wasĀ revised downĀ to a rate ofĀ 1.566Ā million units from the previously reported 1.575 million units. Economists polled by Reuters had forecastĀ startsĀ would come in at a rate of 1.475 million units.

The Federal Reserveā€™s aggressive monetary policy tightening has significantly weakened theĀ housingĀ market, with most indicators falling to levels last seen during the first wave of the COVID-19 pandemic in the spring of 2020. In contrast, other sectors of the economy, like the labor market, have shown resilience despite the central bankā€™s attempts to cool demand.

Since March, the Fed has lifted its benchmark policy rate from near zero to a range of 3.00%-3.25%, and the fed funds rate is now expected to end the year in the mid-4% range with inflation yet to show signs of abating materially.

Mortgage rates have risen even higher. The 30-year fixed mortgage rate averagedĀ 6.94% last week, the highest since 2002, up from 6.81%Ā a week earlier, according to the Mortgage Bankers Association.

Permits for future home constructionĀ rose 1.4% to a rate of 1.564 millionĀ units in September. Residential fixed investment declined at its steepest pace in two years in the second quarter, contributing to the second straight quarterly drop in gross domestic product during that period.

Homebuilding is likely to remain on the back foot for the rest of the year. A survey on Tuesday showed the National Association of Home Builders/Wells FargoĀ HousingĀ Market sentimentĀ index fell for the 10th straight month in October.

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