U.S. housing starts fell by 1.6% to 1.56 million (annualized) units in September, falling short of market expectations for a flat print near the 1.6-million mark. Starts were revised up 7k in July and down 35k in August to 1.58 million.
The decline was a multifamily story, with the latter falling 5.0% (or 25k), giving back half of the gain in the month prior. Starts in the single-family segment, meanwhile, remained unchanged at 1.08 million.
Permitting activity fell 7.7% (or 132k) to 1.59 million, erasing the gains made in the two months prior. The pullback was concentrated in the multifamily market, where permits fell 18.3% (or 123k). The single-family market fared better, with permits falling only 0.9% (or 9k) on the month.
Homebuilding activity was mixed across the regions. Starts fell 27.3% in the Northeast and 6.3% in the South, but were up 6.9% in the Midwest and 19.3% in the West.
Key Implications
The pullback in starts, together with the downward revision to the month prior are disappointing, but the underlying picture for homebuilding is better than meets the eye. Given the series’ volatile nature, it is worth pulling back the lens and looking at the trend. Starts have trended near the 1.6 million (annualized) mark since December 2020, with this level of activity marking the best 10-month streak since 2006.
Underneath the relatively flat homebuilding trend, single-family starts have generally headed lower, while multifamily starts have headed higher thanks to improving public health conditions and better prospects for urban living. An improved sentiment among single-family homebuilders in recent months suggests that this larger segment may soon transition to more positive trend.
The fundamentals for homebuilding remain solid, thanks to exceptionally low inventory levels and expectations for a continued healing of the labor market as the pandemic moves further into the rear-view mirror. Nonetheless, ongoing challenges with supply chains and the sourcing of labor on the production side, along with affordability challenges on the demand side, are likely to keep a lid on a still-healthy level of activity.
