• Housing starts rose 7% in September but dropped from last year.
• Housing permits dropped in September, but single-family permits rose.
• Single-family housing starts and permits are rising, while multifamily activity is down over the past year.
• Recent increases in mortgage rates will be a drag on residential building in the near term.

Total privately owned U.S. housing starts rose 7% in September to 1.358 million annualized units from 1.269 million in August (revised downward from 1.283 million). This was slightly lower than the consensus expectation of 1.383 million. The rise in total housing starts came from a 3.2% rise in single-family housing starts to 963,000 from 933,000 in August, and a 17.6% increase in more volatile multifamily housing starts. On a year-over-year basis total housing starts were down 7.2% in September. But single-family housing starts were up 8.6% year-over-year, while multifamily starts were down 31.4%, even with the September increase.

The number of residential construction permits dropped 4.4% on the month to 1.473 million at a seasonally-adjusted annual rate. Single-family permits rose 1.8% to 965,000 in September, the eighth consecutive increase. Multifamily permits dropped 14.3% to 508,000, the lowest level since November 2020. On a year-over-year basis, total permits dropped 7.2% in September. But as with starts, single-family permitting was up 11.6% year-over-year, while multifamily was down 29.7%.

Starts and permits are falling most rapidly in the Northeast, while the South and West are holding up better, thanks to solid population growth.

Homebuilder confidence as measured by the NAHB Market Index declined again in October to the lowest level since February, according to the National Association of Home Builders, as a recent increase in mortgage rates has weighed on activity. With the Federal Reserve’s higher-for-longer interest rate policy elevated mortgage rates will continue to weigh on residential construction into 2024. With the single-family market undersupplied for years and a limited inventory of existing single-family homes for sale, single-family homebuilding is holding up better than multifamily in 2023.