About the numbers

October housing starts surprisingly dropped more than 30 percent from the 2008 month and 10 percent below the annual rate estimated in September, contributing to an interruption of the stock market's three-day rally.
 
The Dow Jones Industrial Average dipped Wednesday 11.11 points, or 0.11 percent, the Standard & Poor’s 500 stock index dropped 0.52 points, or 0.01 percent,  and the Nasdaq market dove 10.64 points, or 0.48 percent.

Privately-owned housing starts, which comprise single-family and multi-family homes, fell in October to a seasonally adjusted annual rate of 529,000 units, 30.7 percent below the rate of 763,000 in October 2008 and 10.6 percent under the September estimated annual rate of 592,000, according to a report released Wednesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.  

“This is obviously a disappointing number… It largely reflects uncertainty in the market in October of the continuation of the first-time homebuyers tax credit,” said Adam York, economist at Wells Fargo Securities in Charlotte, N.C. “You couldn’t start a home in October and get in done in time for a November deadline, so many builders cut back.”

The American Recovery and Reinvestment Act, or the stimulus plan, provided up to $8,000 in tax credits for first-time homebuyers with a Dec. 1 deadline to close on a home. The deadline  was extended to June 30, 2010 by a bill signed Nov. 6.

Single-family housing starts fell in October by 6.8 percent to a seasonally adjusted annual rate of 476,000 from the revised estimate of 511,000 in September.  

A key indicator of future activity, building permits, were down 4 percent to a rate of 552,000, from a 575,000 estimate. They were 24.3 percent below the 729,000 estimate in the year-ago period.

Single-family permits fell only 0.2 percent, to a rate of 451,000 from September’s estimate of 452,000.

“The key number in the report — single-family housing permits — was flat — as we had expected,” said Patrick Newport, U.S. Economist at IHS Global Insight, in a note. “The recent flattening in single-family starts/permits is payback for the first-time homeowners tax credit passed in February, and which shifted housing starts and permits from 2010 and late 2009 into the first seven months of 2009.”

Multi-family housing units took the hardest hit, falling to all-time lows in both permits and starts. Permits fell to an annual rate of 85,000 units and starts fell to 48,000 units.

“We did not believe that the news on the multi-family housing front could have gotten worse. But it did,” wrote Newport, who called multi-family permits the report's second-most important item.

But multi-family housing units have felt the effects of the economy more than single-family homes.

“It’s a difficult environment for financing [multi-unit housing project], there’s not a lot of reason to build right now,” said York, noting increased vacancy rates and plummeting rent prices across the board.

Housing data will continue to be irregular as the winter season approaches, said York.

“The market has been difficult to read… We expect data to be extremely choppy,” said York. “But we’re off the bottom.”

Looking forward, single-family housing starts are expected to grow, but will continue to remain low into 2012. On the brighter side, multi-family housing has few ways to go but up from here.

Though it may not seem like it, “the recovery is on track,” said Newport.