By Lucia Mutikani
WASHINGTON (Reuters) -U.S. single-family homebuilding rebounded in November as the drag from hurricanes faded, but the threat of tariffs on imported goods and potential labor shortages from mass deportations of immigrants could hamper new construction next year.
The report from the Commerce Department on Wednesday showed only a slight increase last month in permits for the future construction of single-family homes, suggesting that residential investment will probably remain a drag on economic growth in the fourth quarter.
Higher mortgage rates even as the Federal Reserve has been lowering borrowing costs remain a constraint for the housing market, with promised tariffs and expulsions of undocumented immigrants by President-elect Donald Trump seen worsening the situation.
The U.S. central bank is expected to deliver a third consecutive rate cut on Wednesday, but project fewer reductions in borrowing costs than the four it had forecast in September on continued economic resilience and concerns that some of the incoming Trump administration's policies would be inflationary.
"We are less upbeat about the outlook, as we expect Donald Trump's proposed trade and immigration policies to weigh on homebuilders' supply capacity," said Bradley Saunders, North America economist at Capital Economics.
Single-family housing starts, which account for the bulk of homebuilding, jumped 6.4% to a seasonally adjusted annual rate of 1.011 million units last month, the Commerce Department's Census Bureau said.
Homebuilding has struggled for much of this year after benefiting from a severe shortage of previously owned homes for sale. Though the Fed started cutting interest rates in September, the average rate on the popular 30-year fixed-rate mortgage remains near 7%, tracking 10-year U.S. Treasury yields, which have risen on the economy's resilience and worries that the Trump administration's policies will stoke inflation.
A National Association of Home Builders survey on Tuesday showed a measure of sales expectations in the next six months surged in December to the highest level since April 2022. Homebuilder sentiment was steady at seven-month highs amid hopes for fewer regulations from Trump's Republican administration.
TARIFFS HIT FEARED
But economists were less enthusiastic, warning of even higher lumber prices and severe worker shortages if Trump followed through with tariffs and expulsions of undocumented immigrants, which would undermine the housing market.
The U.S. imports large quantities of lumber from Canada. Trump has said he would impose a 25% tariff on all imports from Canada and Mexico.