Despite high mortgage rates averaging more than 7%, single-family starts increased in September as more buyers turned to new homes due to a lack of inventory in the resale market.
According to the US Census Bureau, overall housing starts increased 7% in September to a seasonally adjusted annual rate of 1.36 million units. Department of Housing and Urban Development, as well as the U.S. The Census Bureau.
The September reading of 1.36 million starts represents the number of housing units that builders would begin if construction continued at this rate for the next 12 months. Within this total, single-family starts increased 3.2% to a seasonally adjusted annual rate of 963,000. However, due to higher interest rates, single-family starts are 12.8% lower year to date. According to the National Association of Home Builders, the multifamily sector, which includes apartment buildings and condos, increased 17.6% to an annualized 395,000 pace.
Given the recent decline in the NAHB/Wells Fargo Housing Market Index, the solid level of single-family starts may be revised downward in future reports. That reading of home builder sentiment has now fallen for three months in a row, reaching a low of 40 in October. This decrease implies that the pace of single-family permit and start applications may slow in the final months of 2023.
Despite the market’s ongoing affordability challenges, the housing shortage of resale inventory continues to provide some market support for builders. Due to a scarcity of existing homes on the market, 31% of homes for sale in August were new construction. In comparison, the historical average is 12%.
However, the number of single-family homes under construction in September was 674,000, nearly 15% lower than a year ago, indicating that higher interest rates have slowed the market.
The number of apartments under construction is close to one million and will continue to decline in the coming months. The total number of multifamily units under construction in September (1.002 million) appears to be down from a cycle high of 1.018 million in July. The September level, however, is still more than 10% higher than a year ago.
Regionally and year to date, combined single-family and multifamily starts are down 23.3% in the Northeast, 12.9% in the Midwest, 7.8% in the South, and 16.9% in the West.
In September, overall permits fell 4.4% to a 1.47 million unit annualized rate. Permits for single-family homes increased 1.8% to 965,000 units. Permits for single-family homes are down 13.4% year to date. Multifamily permits fell 14.3% to an annualized rate of 508,000.
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 year to date, according to regional permit data.
