- U.S. housing starts fell by 9.4% to 1.26 million (annualized) units in September, after surging by 15.1% in August. Market expectations were set on a milder decline of -3.2%. Starts were revised down by 11k in July and up by 22k in August for a net gain of 11k.
- The decline was spearheaded by the multifamily segment, where starts retreated by 28.2%, after surging by over 41% in the month prior. The single-family segment managed to eke out some growth and extend the winning streak to four straight months, with units up 0.3% in September.
- Permits exhibited a similar narrative to starts, falling by 5.3% on the month after rising by over 8% in the month prior. The decline was somewhat steeper than expected (-2.7%), and it was concentrated in the multifamily segment (-8.2%). On the other hand, single-family permits rose mildly (+0.8%), extending their winning streak to five months.
- The decline was wide-spread regionally, with starts down in the double digits in the Northeast (-34.3%) and Midwest (-18.9%), %), while the South (-4.0%) and West (-1.9%) exhibited more moderate declines.
- September brings the third quarter to a close, with starts up 2.1% from the second quarter. This follows decent gains of 2.4% and 3.5% in the first and second quarter respectively.
Key Implications
- After surging in the double digits the month prior, some retrenchment in housing starts was to be expected. The good news is that on a trend basis, starts have managed to follow an upward trajectory so far this year, with activity pushing higher for three consecutive quarters.
- The path ahead is not without hurdles, especially when it comes to the supply side, where a shortage of labor and serviceable land continue to be cited as barriers to production. Nonetheless, a solid demand backdrop, thanks to lower interest rates and an unemployment rate that sits at a 50-year low, along with a general shortage of inventory in the housing market, should continue to push starts higher. Developers are in tune with the positive outlook, with builder confidence surging to an impressive 20-month high in the first half of October as per the NAHB Housing Market index.
- All in all, a likely continuation in the upward trajectory in housing starts suggests that residential investment, which has been a consistent growth detractor over the last several quarters, is poised to resume its status as growth contributor toward the latter part of the year.
