Housing starts surged unexpectedly in September, suggesting some relief for homebuyers grappling with tight inventory.
New U.S. home construction increased by 7% last month to an annualized rate of 1.36 million, resurfacing after an 11.3% drop in August, according to data from the U.S. Census Bureau. They rose in three of the four major regions, with just the Northeast seeing a decline.
Multi-family starts in particular were up 17% after a slumping last month. Single-family starts also saw a boost, up 3.2% month-over-month.
“The uptick in single-family production was somewhat unexpected as our latest builder surveys indicate that starts are likely to weaken in the months ahead due to recent higher mortgage rates that were near 7.6% in mid-October,” Alicia Huey, chairman of the National Association of Home Builders (NAHB), said of the data.
Builder confidence has recently taken a hit from the high-rate environment, leading to depressed homebuilder sentiment. NAHB’s latest confidence index slipped to its lowest point since the start of 2023.
In line with builders’ grim mood, permits slipped, down both from August (-4.4%) and from September 2022 (-7.2%). Permits indicate how many homes will be built in the coming months.
But permits for single-family homes did suggest more activity to come, up a modest 1.8% from the month prior.
Last month’s strength may not reflect the overall health of the market, however. Buyers are incredibly rate-sensitive, and many have been forced out of the market by worsening affordability.
“Looking through the volatility of the month-over-month readings, the pace of homebuilding remains fairly weak, consistent with the high degree of interest-rate sensitivity of the sector,” Ali Jaffery, economist at CIBC Capital Markets, told MarketWatch.
Though builders have tried to keep costs low by building smaller homes on less land, lower rates are ultimately necessary to make homes affordable again.
“To keep buyers interested, many builders have been offering upgrades or buying down mortgage rates,” Lisa Sturtevant, chief economist at Bright MLS, told CNN.
“Rising home prices coupled with mortgage rates approaching 8% will mean there will be fewer buyers in the market to entice later this year.”
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