After a solid rebound in the month prior, U.S. housing starts fell 5.3% (or -67k) to 1.20 million in September. The headline print came in a touch lower than expected (-5.6%). An upward revision to July (+10k) and downward revision to August (-14k) subtracted a net 4k from activity.
The decline was led by the volatile multi-family segment, which fell 15.2% to 330k units in September after rising by some 20% in the month prior. Single-family starts fell 0.9% to 871k, giving back about half of last month’s gain.
Building permits also edged lower in September, falling 0.6% (or -8k) to 1.24 million. The multifamily segment (-32k) was entirely responsible for the decline, as single-family permits edged higher (+24k).
Starts were dragged down by steep 14% declines in the South (-90k) and Midwest (-26k). Increases in the West and Northeast helped cushion the blow. Starts rose 6.6% in the West and rebounded by nearly 30% in the Northeast after declining for three straight months.
Key Implications
With Hurricane Florence disturbing homebuilding activity in September, it wasn’t really a question of “will starts fall”, but rather “by how much”. Today’s report, which features a steep decline in the South, suggests that activity cooled much as expected. Rebuilding efforts in the aftermath of the recent hurricanes should provide a temporary boost to residential construction toward the end of the year.
Further out, homebuilding should trek higher, in line with an economy that is operating near full employment and a shortage of homes on the market. However, headwinds to both demand (rising prices and higher interest rates) and supply (rising material costs and shortage of workers and buildable lots) will limit the upside, making for a mild upward trajectory in starts through 2020.
