Single-Family Starts Post Unexpected Gain in September as High Interest Rates Persist

Despite elevated mortgage rates averaging above 7%, single-family starts posted a solid gain in September as more buyers are turning to new homes because of a dearth of inventory in the resale market.

Overall housing starts increased 7% in September to a seasonally adjusted annual rate of 1.36 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The September reading of 1.36 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 3.2% to a 963,000 seasonally adjusted annual rate. However, single-family starts are 12.8% lower year-to-date due to higher interest rates. The multifamily sector, which includes apartment buildings and condos, increased 17.6% to an annualized 395,000 pace.

The solid level of single-family starts was a bit of a surprise and may be downwardly revised in future reports given the recent decline in the NAHB/Wells Fargo Housing Market Index. That reading of home builder sentiment has now declined for three straight months, posting a level of just 40 in October. This decrease suggests that the pace of single-family permits and starts may decline during the final months of 2023.

Despite ongoing challenges for affordability in the market, the housing deficit of resale inventory continues to provide some market support for builders. 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 of 12%.

But in another sign that higher interest rates have slowed the market, the number of single-family homes under construction in September was 674,000, which is almost 15% lower than a year ago.

The number of apartments under construction is near 1 million units and will be falling in the months ahead. The September level of total multifamily units under construction (1.002 million) appears to be off a cycle peak of 1.018 million in July. However, the September level is still more than 10% higher than a year ago.

On a regional and year-to-date basis, combined single-family and multifamily starts are 23.3% lower in the Northeast, 12.9% lower in the Midwest, 7.8% lower in the South and 16.9% lower in the West.

Overall permits decreased 4.4% to a 1.47 million unit annualized rate in September. Single-family permits increased 1.8% to a 965,000 unit rate. Single-family permits are down 13.4% year-to-date. Multifamily permits decreased 14.3% to an annualized 508,000 pace.

Looking at regional permit data on a year-to-date basis, permits are 22.3% lower in the Northeast, 16.6% lower in the Midwest, 12.7% lower in the South and 17.6% lower in the West.