The Commerce Department said Tuesday that housing starts fell 11.2 percent in December from the previous month to a seasonally adjusted annual rate of 1.08 million. This is the slowest pace of construction since September 2016.
Over the past 12 months, housing starts have tumbled 10.2 percent. December's decline occurred for single-family houses and apartment buildings. Builders have pulled back as higher prices have caused home sales to slump, suggesting that affordability challenges have caused the pool of would-be buyers and renters to dwindle.
"Artificially high prices have created affordability constraints, resulting in a situation where builders cannot deliver supply in scale," said Brad Dillman, chief economist for the multi-family developer Cortland. "The result is that today's housing market is undersupplied."
The Commerce Department reported last month that new-home sales in November were 7.7 percent lower than a year ago. The housing market initially cooled last year as average, 30-year mortgage rates climbed to nearly 5 percent. Home prices have consistently risen faster than wages and the inventory of homes listed for $250,000 or less is tight, suggesting a sluggish market ahead.
But the average mortgage has fallen since November, and that may help some Americans to become owners in 2019. Also, the pace of rising prices has slowed while wage growth has accelerated in recent months, which could also boost sales.
"Looking forward we may see a few more months of weak single-family starts before increasing confidence leads to increased production," said Danielle Hale, chief economist for realtor.com. Permits to build housing, an indicator of future activity, increased just 0.3 percent in December. Among single-family houses, permits fell 2.2 percent in December and 5.5 percent from a year ago.
Housing starts were flat in the Northeast in December but fell in the Midwest, South and West.