Housing starts toppled in September to a seasonally adjusted annual rate of 1.44 million units, down 8.1% monthly and 7.7% yearly, according to a new report from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
It was a return to recent and discouraging form for residential construction, which saw a brief rebound in August but had otherwise been on the downswing throughout much of the year. Rising costs for land and materials have combined with withering housing demand to dampen new groundbreakings, which undershot a forecast of Reuters-polled economists by a pace of 127,000 units in September.
Single-family starts fell 4.7% during the month to a rate of 892,000 units, the lowest in more than two years. It’s the seventh straight decline in starts for the single-family sector, which has particularly felt the sting of high mortgage rates that have eroded affordability and coaxed many would-be homebuyers out of the buyer pool.
Multifamily starts, which are more volatile on a monthly basis than single-family starts, sank by 13.2%, partially offsetting the 32.1% gain from one month prior. The rapid ascent of mortgage rates has been a chief driver of the construction pullback.
“The new home market is very rate sensitive, and builders will respond to the decline in affordability and cooling demand by building less,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “While there remains a structural and long-term shortage of housing, the pullback in demand and ongoing supply-side headwinds has builders spooked.”
“Higher interest rates are hurting the ability of buyers to purchase a new home, particularly at the entry-level end of the market,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB). “Higher rates also harm the supply side of the market by increasing the cost of construction and development loans.”
Amid the continued slide, homebuilder confidence in the housing market has tumbled. According to the NAHB/Wells Fargo Housing Market Index (HMI) released earlier this week, homebuilder sentiment plunged eight points in October to 38, its lowest point since August 2012, with the exception of the start of the COVID-19 pandemic.
“The ongoing decline for single-family construction mirrors weakness for single-family builder sentiment, which has now declined for 10 straight months and stands at half the level of a year ago,” said Robert Dietz, NAHB chief economist. “The September single-family production level is below a 900,000 annualized rate and the lowest level since May 2020.”
The persistent downward spiral in the HMI doesn’t bode well for construction for the rest of 2022, although permits for future home construction (which are a leading indicator of future starts) were somewhat surprising, growing by 1.4% to a rate of 1.57 million units. The gain, however, was propelled entirely by multifamily permitting, which rose 7.8% monthly. Single-family permits didn’t offer much hope in the near term, decreasing 3.1% from August.