After jumping 9% in August, housing starts retreated in September, with most of the decrease coming in multifamily production, according to the latest estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
Housing starts have now fallen for three of the past four months – and most of the “warm-weather” months this year.
What’s more, the recovery from hurricanes Michael and Florence means builders will likely be struggling to bring new supply online in the months to come.
In September, starts were at a seasonally adjusted annual rate of about 1.201 million, according to the government’s estimates. This a decrease of 5.3% compared with the revised estimate of 1.268 million in August, but an increase of 3.7% compared with 1.158 million in September 2017.
Starts of single‐family homes were at a rate of 871,000, down 0.9% compared with 879,000 in August. Starts of multifamily homes (five units or more per building) was at a rate of 324,000, down 12.9% compared with 372,000 in August.
Regionally, combined single-family and multifamily housing starts increased 29% in the Northeast and 6.6% in the West. However, they fell 13.7% in the South and 14% in the Midwest.
Permits weren’t looking too good, either. They were at a seasonally adjusted annual rate of 1.241 million, down 0.6% compared with a revised 1.249 million in August and down 1.0% compared with 1.254 million in September 2017.
Permits for single‐family homes were at a rate of 851,000, an increase of 2.9% compared with a revised 827,000 in August.
Permits for multifamily dwellings were at a rate of 351,000 in September, down 9.3% compared with 387,000 in August.
Regionally, combined single- and multifamily permits jumped 11.1% in the West and 0.6% in the South, but fell 9.8% in the Northeast and 18.9% in the Midwest.
“Housing starts are in line with builder sentiment, which shows that builders are overall confident in the housing market but continue to face supply-side challenges,” says Randy Noel, chairman of the National Association of Home Builders (NAHB), in a statement. “Though lumber prices have declined recently, builders remain concerned about labor shortages, especially as the number of unfilled construction jobs has reached a post-recession high.”
“This report is consistent with our forecast for gradual strengthening in the single-family sector of the housing market following the summer soft patch,” adds Robert Dietz, chief economist for NAHB. “A growing economy coupled with positive demographics for housing should keep the market moving forward at a modest pace in the months ahead.”
The rebuilding effort following hurricanes Michael and Florence, however, is likely slow production in the months to come.
“Efforts to repair damage from hurricanes Florence and Michael will likely slow housing starts in coming months, as resources are redirected toward repairs and rebuilding efforts,” explains Mark Fleming, chief economist for First American.
Fleming adds that “housing permit and construction activity typically slows down in the impacted area, and the labor needed to help repair the hurricane damage further disrupts new housing construction.”
“Using data from DataTree by First American and the National Hurricane Center, we estimate that Hurricane Michael will impact $125 billion of residential real estate in Florida,” Fleming says.
Another negative impact from the storms is that the recovery will drive up demand for building materials, which, in turn, will drive up the cost of those materials. It will also drive up the cost of labor.
“The competition between reconstruction and new construction after hurricanes depends on the extent of the damage, but the cost of labor is likely to increase significantly, creating additional headwinds to housing starts,” Fleming says. “Past research found that average construction labor costs increased 10 percent following Hurricane Katrina in the three metro areas surrounding New Orleans 1.5 years after the storm.”
Fleming points out that homes that must be completely rebuilt as a result of the storms will be counted as “new construction” by the government – even though it’s not adding to the housing stock, just replacing existing units.
“For example, if a new house was built on the existing foundation of a home that was destroyed, it is considered a new housing start, according to the Census Bureau,” he says. “Therefore, although we expect the impact of recent hurricanes to further limit the pace of new home construction in the immediate future, we may still see an uptick in starts in the most damaged areas because some reconstruction will actually be considered new housing starts.”