Multifamily shortfall leads to disappointing gain in September housing starts

September housing starts came at a seasonally adjusted annual rate of 1.42 million, according to the U.S. Census Bureau — a somewhat disappointing figure despite growing both monthly and yearly.

Per the figures jointly released by the Census and the Department of Housing and Urban Development, starts were up 1.9% from August and 11.1% from September 2019. That modest monthly gain caught the eye of some experts, considering that residential construction saw a pullback in August due to a slowdown in multifamily building.

Wells Fargo reported that market consensus had called for growth of closer to 1.47 million units.

“Multifamily starts have been hit or miss on a monthly basis,” wrote Wells Fargo Securities’ Economic Group in commentary released after building data was announced. “Demand for apartments in large, globally connected, dense cities has weakened considerably since the pandemic began. That part of the market had dominated construction for much of the decade and is now correcting amidst an avalanche of new supply in many markets.”

That multifamily weakness continued in September, with starts for units in buildings with five units or more coming in at a paltry annual pace of 295,000. Month over month, multifamily building fell 16.3% in September, and while multifamily starts tend to be volatile on a monthly basis, the tumble is nonetheless notable after the sector saw a drop of 25.9% in August.

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On the flipside, the gain in overall housing starts was propelled by the momentum in single-family construction. Single-family starts sprang 8.5% from August to a seasonally adjusted annual rate of 1.11 million units in September, up 22.3% from September 2019.

Much of that gain came in the South, which continues to dominate the country’s other three regions when it comes to single-family home building. Single-family starts in the region grew 17.7% month over month to a pace of 645,000 homes, more than the other three combined. Single-family construction was up 20.7% in the Northeast and 1.6% in the West, though down 16.4% in the Midwest.

And more rosy skies could be on the horizon: Single-family permits jumped 7.8% from August and 24.3% from last year to a rate of 1.12 million.

“Builders are gearing up for an even faster pace in the months ahead, which is welcome news for households wanting to buy a new home,” said Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association. “The housing market is being constrained by the lack of inventory, with both new and existing homes being sold faster than new listings are arriving.”

Overall, permits were at a seasonally adjusted annual rate of 1.55 million in September, a jump of 5.2% from August and 8.1% from one year prior.

Despite the modest overall figure, the dramatic spike in single-family building is a testament to the resilience of the housing segment, according to Chuck Fowke, chairman of the National Association of Home Builders.

“Builder confidence is at an all-time high as buyer traffic is strong — another sign that housing is helping to lift the economy,” Fowke said.


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