The roller coaster of single-family construction continued in September as one-unit starts rebounded from the previous month’s drop, fueled by demand for new inventory in the midst of persistent resale scarcity.
Single-family housing starts in September came in at a seasonally adjusted annual rate of 963,000, up 3.7% from August’s downwardly revised pace. The bump pushed total housing starts to a seasonally adjusted annual pace of 1.36 million units, down 7.2% year over year but up 7% from August’s revised estimate.
The National Association of Home Builders (NAHB) called the jump in single-family starts “unexpected,” given the current high interest rate structure. Obstinately elevated rates have been the chief driver for the plunge in builder confidence, as the NAHB/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment sank to its lowest point since January. The HMI recently dropped for a third straight month in October, falling four points to a reading of 40; index readings below 50 indicate that more builders perceive conditions as poor rather than good.
“Despite ongoing challenges in the market, the housing deficit of resale inventory continues to provide some market support for builders,” said Robert Dietz, NAHB chief economist. “Because of a lack of existing homes in the marketplace, 31% of homes available for sale in August were new construction. This compares with a historical average in the 12% to 14% range.”
Single-family permits were also up, gaining 1.8% from August. Permitting figures suggest that single-unit construction is likely to grow further, as one-unit authorizations have grown each month this year. But the numbers also reflect the toll that higher interest rates have taken on the market. For one thing, the number of single-family homes under construction during September was only 674,000, a drop of nearly 15% year over year.
As surprising as the single-family rebound was, the bulk of September’s improvement in starts was fueled by multifamily construction. Starts in this sector rose for the first time in four months, a nominally good sign, but it’s difficult to correlate to any potential trajectory moving forward given the notorious volatility in the multifamily construction space. If anything, apartment construction may be in for a near-term ebb, as multifamily permits dropped 14.3% month over month and fell to their lowest level since October 2020. This added to an ongoing downturn in authorizations that has endured for several months.