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Housing construction picked up in September, but developers are getting anxious

Multifamily permits are falling

Housing starts climbed to a seasonally adjusted annual rate of 1,358,000 in September, according to U.S. Department of Housing and Urban Development and U.S. Census Bureau data. It’s a 7% gain from the revised August estimate of 1,269,000 and 7.2% below the September 2022 rate of 1,463,000.

However, permits for future construction recorded a 4.4% decline from August. Indeed, privately‐owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,473,000, down from 1,541,000 in August.

“Despite the uptick last month, builders are becoming increasingly anxious about persistently high mortgage rates and cooling demand,” Lisa Sturtevant, chief economist at Bright MLS, said in an emailed statement. 

To boost sales, builders have been offering different concessions such as upgrades or buying down mortgage rates.

On Tuesday, the monthly builder confidence index came out. It showed the biggest drop in confidence since January 2023. 

Overall, single‐family housing starts in August came in at a rate of 963,000, which is 3.2% above the revised August figure of 933,000. However, it was 12.8% lower than in September 2022 due to higher interest rates. Meanwhile, the housing starts rate for units in buildings with five units or more, increased to 383,000.

Single-family permits increased (+1.8%) to 965,000 in September but were still down 13.4% compared to the same period last year. Meanwhile, multifamily permits came in at 459,000, a sharp decline from August and 14.3% lower than September 2022. Completed homes picked up 6.6% from the prior month and were 1% above the September 2022 level. 

Regional breakdown

Month-over-month, single-family starts fell in the Northeast but remained strong in other regions of the country, Sturtevant noted.

“Slower construction activity in the Northeast could reflect cooler demand as well as challenges builders face in finding availability lots,” she said.

However, on year-to-date basis, single-family and multifamily starts were lower all across the country. They were 23.3% lower in the Northeast, 12.9% lower in the Midwest, 7.8% lower in the South and 16.9% lower in the West, according to the National Association of Home Builders.

Could multifamily construction stall?

Multifamily construction came in strong between August and September, which is a good sign for the rental inventory. In many markets in the US, renting has become a sounder financial decision than buying amid elevated mortgage rates. However, the relief felt by some renters might only be temporary if new apartment construction slows in the fourth quarter, Sturtevant warns.

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