- U.S. housing starts rose by 4.9% to 1.53 million units (annualized) in October. The reading came in well above market expectations, which called for a milder increase of 3.3% to 1.46 million units. Today’s report also included revisions to the September and August prints (+29k on net).
- As in previous months, the increase was driven by single-family starts, which rose by 6.4% to 1.18 million. By contrast, starts in the more volatile multi-family segment held flat at 351k for the second straight month.
- Overall, building permits were flat in October, after increasing by 4.7% the month prior. However, single-family permits continued their seven-month streak of advances, rising by a modest 0.6%. This was offset by a drop in multifamily permits (-1.6%), the third consecutive month of decline.
- Regionally, starts advanced in all major Census regions but the Northeast, where they were down 38.6%. The gains were largest in the Midwest (12.9%), followed by the West (4.2%) and the South (3.3%).
Key Implications
- Homebuilding continues to hold up. Overall, starts have increased in five of the last six months, powered by an impressive rebound in single-family starts. Construction in this segment has now surpassed its pre-crisis level by 14%, while multi-family starts have dipped 34% below after posting some improvement in the early months of the recovery. As discussed in a recent report, the recent trends exhibited by housing starts and permits speak to the growing shift in housing preferences toward bigger homes and more outdoor space.
- Buoyed by strong sales growth, builder confidence has soared to new all-time highs in each of the past three months. Despite this optimism, the near-term outlook presents some distinct challenges. With home prices continuing to climb higher, housing affordability has deteriorated, and fell to nearly a two-year low last quarter. Homebuilders have been faced with supply constraints which have pushed construction costs higher, contributing to higher prices. These factors could weigh on housing demand growth in upcoming months at the same time as the economic recovery loses some momentum as infections rise.
