Should Investors Heed Caution on This Housing Report?

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Housing affordability levels continue to receive pressure from rising interest rates and higher home prices, but housing starts in the United States were better than expected last month. Builders broke ground on houses at a seasonally adjusted annual rate of 1.09 million units in November, up 22.7 percent from October, according to the U.S. Department of Commerce.

It was the biggest jump in housing starts since January 1990, and the highest level since February 2008. Compared to last year, housing starts are up nearly 30 percent. On average, economists expected overall housing starts to increase to a rate of 950,000 units in November. Single-family housing starts, the largest segment of the market, surged 20.8 percent in November to an annualized rate of 727,000 units. It was the second consecutive month of gains for single-family housing starts. However, not every component of housing starts warrant optimism.

Despite the impressive numbers, there are caveats to the report that investors should not overlook. Breaking ground on multi-family homes with at least five units jumped from 281,000 units in October to 354,000 units in November, indicating that builders expect the rental market to remain strong. This seems reasonable given the weak labor market and skyrocketing home prices.

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