Residential Construction Woes Linger as Housing Starts Dip in September
The latest government data shows a housing market waylaid by a critical shortage of properties for sale, higher home prices and rising mortgage rates.
In the wake of a 9% increase in August, housing starts fell back in September, with much of the decline coming in multifamily production, according to newly released data from the Commerce Department.
The latest data indicates housing starts sank last month to a seasonally adjusted annual rate of 1.2 million, down from 1.27 million in August. Although starts have increased 6.4% since the beginning of the year, the pace of homebuilding has declined since May.
The steep decline in housing starts came as multifamily starts fell by 15.2% to a rate of 330,000 in September after rising by more than 20% to a revised rate of 389,000 in August.
Single-family housing starts also dipped by 0.9% to a rate of 871,000 in September after jumping by 2.1% to a rate of 879,000 in August.
Homebuyers are facing new cost pressures that analysts say could be dampening demand.
The Federal Home Loan Mortgage Corp., known as Freddie Mac, reported that the average 30-year fixed-rate mortgage jumped to 4.9% last week, the highest level since 2011. The combination of higher borrowing costs and rising home values has made home ownership less affordable, Steven Blitz, chief U.S. economist at TS Lombard in New York told Reuters.
“The flattening of housing construction is essentially in place,” Blitz said. “Wage growth has begun to improve but not enough to give people the necessary income to carry a mortgage — especially for younger families, many still working out from under student loans.”
The Commerce Department’s report, released Wednesday, showed an unexpected decrease in building permits, which fell by 0.6% to an annual rate of 1.2 million in September after sliding by 4.1% to a revised 1.249 million in August.
Building permits — seen as an indicator of future housing demand — had been expected to jump by about 4.1% to a rate of 1.3 million from the 1.2 million originally reported for the previous month.
The expected decrease in building permits came as a steep drop in multifamily permits more than offset a notable increase in single-family permits. Multifamily permits slumped by 7.6% to a rate of 390,000 in September, while single-family permits climbed by 2.9% to a rate of 851,000.
On Tuesday, the National Association of Home Builders (NAHB) released a separate report showing an unexpected uptick in homebuilder confidence in the month of October.
“Housing starts are in line with builder sentiment, which shows that builders are overall confident in the housing market but continue to face supply-side challenges,” NAHB Chairman Randy Noel, a custom home builder from LaPlace, La., said in a press release. “Though lumber prices have declined recently, builders remain concerned about labor shortages, especially as the number of unfilled construction jobs has reached a post-recession high.”
NAHB Chief Economist Robert Dietz said the report is consistent with the association’s forecast for gradual strengthening in the single-family sector of the housing market following a summer slow-down.
“A growing economy coupled with positive demographics for housing should keep the market moving forward at a modest pace in the months ahead,” Dietz said.
Regionally in September, combined single-family and multifamily housing starts rose 29% in the Northeast and 6.6% in the West. Starts fell 13.7% in the South, thought to be due to Hurricane Florence, and 14% in the Midwest.
Permit issuance rose 11.1% in the West and 0.6% in the South. Permits were down 9.8% in the Northeast and 18.9% in the Midwest.
The Commerce Department’s residential construction report for October is scheduled for release on Nov. 20.
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