U.S. home building fell to a one-year low in September as Hurricanes Harvey and Irma disrupted the construction of single-family homes in the South, suggesting housing probably remained a drag on economic growth in the third quarter.
The report on Wednesday from the Commerce Department also showed a decline in building permits, raising concerns that the housing market recovery was stalling. Home building and sales are well below their peaks before the housing bubble burst in 2006.
"Residential construction should be a hefty drag on third-quarter GDP growth," said Michael Gregory, deputy chief economist at BMO Capital Markets in Toronto. "Housing activity has shifted from leading the economic expansion to now just following it, at best."
Housing starts decreased 4.7 percent to a seasonally adjusted annual rate of 1.127 million units last month, the Commerce Department said. That was the lowest level since September 2016 and marked the third monthly decline in starts.
Groundbreaking tumbled 9.3 percent in the South to the lowest level since October 2015, with single-family home building in the region plunging 15.3 percent to more than a one-year low. The South, which was pummeled by Harvey and Irma, accounts for almost half of the nation's home building.
Building permits fell 4.5 percent to a rate of 1.215 million units in September. Permits in the South dropped 5.6 percent. The Commerce Department said the areas in Texas and Florida impacted by the storms accounted for about 13 percent of U.S. building permits in 2016.
"September's drop in starts underscores the importance of Florida and Houston," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Economists had forecast housing starts falling to a rate of 1.175 million units last month and building permits slipping to a rate of 1.250 million units.
The PHLX index of housing stocks was flat, underperforming a broadly firmer U.S. stock market, and shares in the nation's largest home builder, D.R. Horton, fell 0.4 percent.
The dollar rose marginally against a basket of currencies while U.S. Treasurys fell.
Labor shortages loom
Even before the storms struck, residential construction had almost stagnated this year amid shortages of land and skilled labor as well as rising costs of building materials.
Investment in home building contracted at a 7.3 percent annualized rate in the second quarter, the steepest drop in nearly seven years. As a result, housing subtracted three-tenths of a percentage point from gross domestic product in the April-June quarter.