Housing Starts Fell in September, Supply Still Not Keeping Pace with Demand

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After jumping 12.3% in August, housing starts reversed course in September, falling 9.4% to an annual rate of 1.256 million. 

Although starts fell compared with the previous month, they were nonetheless up 1.6% compared with September 2018, according to estimates from the U.S. Census Bureau and U.S. Depoartment of Housing and Urban Development.

Most of the decrease was due to a pronounced drop in starts of multifamily homes (five units or more per building), which were at a rate of 327,000, down 28.3% compared with 456,000 in August.

Starts of single‐family homes in September were at a rate of 918,000, an increase of 0.3% compared with 915,000 in August.

On a regional and year-to-date basis, combined single- and multifamily starts fell 12.2% in the West, 6.2% in the Midwest and 0.6% in the Northeast. However, starts increased 6.0% in the South.

Building permits also fell month-over-month. They were at an annual rate of 1.387 million, a decrease of 2.7% compared with a revised 1.425 million in August.

However, permits were up 7.7% compared with a rate of 1.288 million in September 2018.

Permits for single‐family homes were at a rate of 882,000, an increase of 0.8% compared with a revised 875,000 in August.

Permits for multifamily units were at a rate of 470,000 in September, down 7.5% from 508,000 the previous month.

Regionally, and year-over-year, permits fell 4.9% in the Midwest and 3.5% in the West. However, permits increased 8.1% in the Northeast and 3.4% in the South.

Housing completions were at a seasonally adjusted annual rate of 1.139 million, a decrease of 9.7% compared with a revised 1.262 million in August and down 1.0% compared with 1.150 million in September 2018.

Completions of single‐family homes were at a rate of 852,000, a decrease of 8.6% compared with 932,000 in August.

Completions of multifamily units were at a rate of 285,000, a decrease of 10.9% compared with 320,000 in August.

“Single-family builders continue to see positive conditions for housing, and this is reflected in NAHB’s Housing Market Index, which measures builder sentiment,” says Greg Ugalde, chairman of the National Association of Home Builders (NAHB), in a statement. “However, builders are still being somewhat cautious as they continue to deal with supply-side challenges which impact housing affordability.”

“Multifamily housing starts fell from an unsustainably high level in August and are running at a solid pace despite the sharp monthly decline,” adds Robert Dietz, chief economist for NAHB. “Meanwhile, the rebound for single-family construction continues. Single-family permits have increased since April, and single-family starts have posted gains since May. In another positive development, September marked the first monthly increase for the number of single-family homes currently under construction since January.”

Mark Fleming, chief economist for First American, says the “good news [is] that building permits are up in September by almost eight percent,” compared with a year earlier, which is “a hopeful sign that more housing is on the way.”

“In a market with so much demand for shelter, if you build it, they will buy it,” Fleming says.

Much of the current demand for housing is coming from millennials, who “have formed households in droves,” Fleming says.

“The need to build more housing has increased significantly,” he says. “Currently, low mortgage rates and rising household income have buoyed purchasing power.”

Fleming notes that a lack of construction labor has been holding home builders back in recent years.

“However, this constraint may be easing as residential construction jobs increased 4.1 percent between September 2018 and September 2019,” he says. “More people at work in residential construction signals that housing construction is likely to increase in the months ahead, reinforcing reports that builder confidence increased to its highest level in nearly two years in October, even in the face of cost challenges.”

Still, the pace of new construction is not keeping up with demand.

“Regardless of the month-to-month swings in permits, starts and completions, more housing needs to be built,” Fleming says. “We have under-built new housing relative to demand for shelter for years and are still falling short of the 1.2 million units that would be needed to meet the increased demand stemming from rising household formation.”

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