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US Housing Starts Ease on Decline in Multifamily Construction

A workers installs siding on a home under construction at the Cold Spring Barbera Homes subdivision in Loudonville, New York, US, on Tuesday Oct. 15, 2024. The US Census Bureau is scheduled to release housing starts figures on October 18. Photographer: Angus Mordant/Bloomberg (Angus Mordant/Bloomberg)

(Bloomberg) -- US housing starts eased in September as a drop in multifamily projects outweighed a pickup in construction of single-family dwellings.

Housing starts decreased 0.5% last month to a 1.35 million annualized rate, according to government data released Friday, after a big rebound in August. The September figure was in line with the median projection in a Bloomberg survey of economists.

Starts of single-family homes climbed 2.7% to an annualized 1.03 million, the strongest in five months. Construction of multifamily homes slumped 9.4% to a four-month low.

The number of overall building permits, a proxy for future construction, fell 2.9% to a 1.43 million annualized rate. Permit applications for single-family home construction rose 0.3% to a 970,000 pace.

Even with the rise in single-family home construction, the rate is down from the furious pace seen in late 2021 and early 2022, when mortgage rates were close to 3% and a historic dearth of existing homes for sale propelled demand for new houses. 

However, after the Federal Reserve boosted interest rates to the highest level in two decades, demand weakened and ultimately left homebuilders with the largest supply of new homes in 16 years.

Home construction is seen shaving the most from third-quarter gross domestic product since 2022. Before the figures, the Atlanta Fed’s GDPNow forecast saw residential investment subtracting 0.43 percentage point after a 0.11 point reduction in the second quarter. 

By Region

Starts of one-family homes rose in two of four regions, including a 6.6% increase in the South to a five-month high, and a 10.6% gain in the Northeast.

A sustained housing recovery will take time as mortgage rates, which hit a two-year low in mid-September, have recently picked up. Nonetheless, builders on recent earnings calls have been upbeat about the prospect of cheaper home financing costs after the Fed cut interest rates by a half-point last month. 

“With affordability still a pressing issue in many regions, home building will likely remain stagnant until the Fed is well into its easing cycle and mortgage rates have fallen another one percentage point,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note.

Lower borrowing costs should revitalize the resale market, which will filter through into firmer demand for new homes, according to Jeffrey Mezger, chief executive officer of KB Home.

“There’s a lot of people that are locked out of moving up because there’s not enough product, or they don’t want to sell their current home, but they need to move up,” Mezger said on the company’s earnings call last month. “I think the whole thing opens up. What we call the housing food chain will unlock if inventory would come up a little bit.”

The starts report showed completions of new single-family homes decreased 5.7% to a 1.68 million annual pace, while the number of projects under construction slid nearly 2% to an almost three-year low, the government data show.

The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 13.5% decline to a 12.5% gain.

--With assistance from Chris Middleton.

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©2024 Bloomberg L.P.