U.S. single-family homebuilding surged to a five-month high in September, but permits for future construction rose only marginally amid excess supply of new homes on the market and prospective buyers holding out for lower mortgage rates.
Despite the second straight monthly increase in single-family housing starts, economists expected that residential investment, which includes homebuilding and sales, was a small drag or had a neutral impact on third-quarter economic growth.
“Residential construction activity is not helping the economy grow at its potential rate,” said Carl Weinberg, chief economist at High Frequency Economics.
“‘Falling’ interest rates are different than ‘low’ interest rates until they have been falling for a while. For builders and buyers, the promise of more rate cuts to come will encourage delaying new construction projects and purchases.”
Single-family housing starts, which account for the bulk of homebuilding, increased 2.7 per cent to a seasonally adjusted annual rate of 1.027 million units last month, the Commerce Department’s Census Bureau reported on Friday. Data for August was revised higher to show single-family homebuilding rebounding to a rate of 1.0 million units from the previously reported 992,000-unit pace.
Starts for this segment rose 6.6 per cent in the densely populated South and jumped 10.6 per cent in the Northeast. But they fell 10.4 per cent in the Midwest, which is considered the most affordable region, and dropped 2.3 per cent in the West.
Single-family homebuilding advanced 5.5 per cent from a year ago.
New construction has benefited in recent years from a dearth of previously owned houses on the market, prior to the spring resurgence in mortgage rates, which sidelined prospective buyers and pushed the supply of new homes on the market to levels last seen in 2008. Potential homebuyers have also been reluctant to wade back into the market, anticipating even lower borrowing costs.
A National Association of Home Builders survey on Thursday showed a moderate improvement in homebuilder sentiment in October. It also showed a slight rise in the share of builders using incentives such as price cuts to attract buyers.
Starts for housing projects with five units or more declined 4.5 per cent to a rate of 317,000 units in September. Overall housing starts slipped 0.5 per cent to a rate of 1.354 million units. Economists polled by Reuters had forecast starts would decrease to a rate of 1.350 million units. Housing starts fell 0.7 per cent from a year ago.
Homebuilding could suffer a temporary setback from the impact of Hurricanes Helene and Milton, which devastated Florida and large areas of the U.S. Southeast in late September and early October. But rebuilding after the hurricanes could provide a lift for homebuilding.
Building permits for single-family housing rose 0.3 per cent to a rate of 970,000 units last month. Permits were 1.2 per cent lower compared to September 2023.
Multi-family building permits plunged 10.8 per cent to a rate of 398,000 units. Building permits as a whole declined 2.9 per cent to a rate of 1.428 million units. They fell 5.7 per cent from a year ago.
Residential investment subtracted from gross domestic product in the second quarter.
The number of houses approved for construction that were yet to be started dropped 0.7 per cent to 282,000 units last month.
The single-family homebuilding backlog fell 2.1 per cent to 143,000 units. The completions rate for that housing segment declined 2.7 per cent to 1.0 million units.
