US housing starts hit three-year low - reaction

The US Census Bureau has released its latest housing starts report, showing a pullback in new residential construction in August.

Led by a sharp decline in multifamily production, housing starts fell to a three-year low of 1.28 million units – an 11.3% drop from July levels of 1.45 million and 14.8% below the August 2022 reading of 1.51 million units.

Single-family starts declined moderately in August, down 4.3% month over month to a seasonally adjusted rate of 941,000. Multifamily starts, however, plunged roughly 26% to a 334,000 rate.

Fannie Mae deputy chief economist Mark Palim commented: “The bigger story is likely the 26.3% collapse in multifamily starts to a SAAR of 342,000 in August, the lowest level since the end of 2020. While the magnitude of the drop-off in multifamily starts was somewhat surprising, the direction was not, given that permits have generally trended downward since the summer of 2022. With multifamily rent growth being soft, a large number of units currently under construction, and tightening bank lending for construction lending, we continue to expect softness in new multifamily starts moving forward.”

Despite the slowdown, building permits were 6.9% higher month over month, suggesting a temporary setback.

“However, we note that the multifamily series is notoriously volatile, and the significant decline in starts was coupled with a 15.8% jump in multifamily permits, though both are now trending downward,” Palim added.

According to the report, multifamily authorizations were up to a 535,000 rate, and single-family permits increased by 2% to 949,000 in August. Overall housing completions also increased to an annualized rate of 1.41 million, up 5.3% from the previous month.

“There is still an elevated number of single-family homes under construction and a near-record number of multifamily units are under construction – promising signs of more housing supply in the pipeline,” said First American economist Ksenia Potapov. “When these units are completed, it should put downward pressure on prices and provide some affordability relief.”

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“Moving forward, with mortgage rates over 7% and a further decline in homebuilder confidence in September, we expect some additional softening. Still, given the ongoing lack of inventory of homes available for sale on the existing side, we expect starts to remain relatively resilient through the rest of the year,” Palim said.

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