- U.S. housing starts increased by 1.9% month-on-month to 1.42 million units (annualized) in September. The headline print came slightly below market expectations, which called for a more optimistic 2.5% jump to 1.45 million units. Today’s report also came with revisions to the August and July readings (-33k on net).
- The improvement was concentrated in single-family starts, which advanced by 8.5% to 1.11 million units following a 2.9% increase in the month prior. By contrast, the recent softness in multi-family construction extended to September as starts in this segment fell by 16.3% to 307k units.
- Building permits advanced by 5.2% in September to 1.55 million after a 0.5% decline in August (previously reported as -0.9%). Single-family permits were up 7.8%, while multi-family permits declined by 0.9%.
- The regional outturn was positive overall, with starts improving in three of the four major regions. The Northeast led the ranks with a whopping 66.7% gain, followed by modest increases in the South (6.2%) and the West (1.4%). Bucking the trend was the Midwest, where starts contracted by 32.7%.
Key Implications
- Following a setback in August, housing starts resumed their growth trajectory in September, marking the fourth monthly increase in the last six months. The September print also brought starts within 9.7% of their February levels, though the pace of growth has slowed markedly from the sharp rebound of earlier months. The turnaround in homebuilding activity, especially in the single-family segment, remains one of the main highlights of the economic recovery thus far.
- Supported by low mortgage rates, the growth in housing demand has been particularly impressive over the last few months. In fact, sales of new single-family homes are outpacing single-family starts by a historical margin according to a recent National Association of Home Builders (NAHB) study. This suggests that there is room for additional homebuilding growth in the coming months. What is more, elevated traffic numbers have pushed builder confidence to consecutive all-time highs in September and October.
- On the other side of the ledger, binding constraints on the supply front are a thorn in the otherwise positive outlook. Notably, skyrocketing softwood lumber prices, which have surged by a record 29% month-on-month in September, are effectively adding thousands of dollars to construction costs. A fall resurgence in new COVID-19 cases as well as a labor market recovery that is losing steam are other factors that could weigh on housing demand as we near the end of the year and enter 2021.
