U.S. new residential construction dropped by a massive 10.6% M/M, bringing the level of starts to 529K units.

- Both multiple and single-family units construction declined, falling 15.2% M/M and 6.8% M/M, respectively.
- Overall, this was a very disappointing report, though we expect the stabilisation in the U.S. housing market to remain intact.

New residential construction declined unexpectedly in October, falling by 10.6% M/M to 529K units (from 592K units the month before). The decline was in stark contrast to the market consensus for a 600K units print, and was well shy of our own call for a rise to 620K units. This was only the second monthly decline in this indicator in six months, and brings the level of homebuilding activity to its lowest level since April. Construction of single-family units (down 6.8% M/M to 476K units) and multi-family units (down 15.2% M/M to 89K units) were lower on the month. With the dramatic fall in building activity, the level of starts are down 31.6% compared to their year-ago levels, and are 76.7% below their cyclical peak of the 2.27 million units constructed January 2006. Permits were also lower on the month, falling by 4.0% M/M to 552K units from 575K units, driven by the 0.2% M/M to 451K units drop in the number of single-family permit approvals. Approvals for multi-family units, however, rose by 6.0% M/M to 123K units. On the whole, this report was clearly disappointing, particularly as it comes at a time when evidence of a stabilisation in U.S housing activity was becoming more common. Nonetheless, it is consistent with the recent weak homebuilders’ confidence reports, which continue to show that U.S. homebuilders remained deeply dismayed with the state of the housing market. Even so, with the extension of the homebuyers’ tax credit program recently and the favourable buying conditions (low mortgage rate and prices) likely to add some upward momentum to U.S. housing activity, we expect the stabilisation in the housing market to remain largely intact and construction activity to regain its footing. However, the pace of recovery should be modest.