Fresh figures from the Census Bureau and HUD on Thursday point to a cooler construction backdrop. Total housing starts slipped 2.6% in August to a 1.28 million annualized rate, missing economist expectations. The report also underscored how jumpy this series can be, with a 90% confidence interval for the monthly change spanning between a 14.6% decline and a 9.4% increase.
The drag came from apartments and other multifamily projects, which fell nearly 22%. In contrast, single-family building picked up 7.6% to a 918,000 pace, the strongest since March, powered by gains in the West and Midwest. Completions cooled sharply, off nearly 12% to the slowest run rate since late 2018, and one-family completions fell to the weakest level since before the pandemic.
Higher borrowing costs and stretched affordability are still taking a toll. The Mortgage Bankers Association said the average 30-year mortgage rate was nearing 7% last week, the highest in more than a year. That is restraining purchase activity and weighing on builder sentiment. A greater share of builders is leaning on incentives and price cuts to attract buyers, according to the National Association of Home Builders. As Capital Economics' Bradley Saunders put it, "The big picture remains that elevated and rising borrowing costs are holding developers back, supporting our view that the downward trend in housing starts has further to run."
Given that inventories remain well above pre-pandemic norms, builders may be reluctant to scale up construction of new homes.
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By region, the South, the largest homebuilding market, saw starts edge down 1.3% to a three-month low. The West jumped to a five-month high. In the Midwest, single-family construction advanced even as multifamily activity sagged.
Looking ahead, permits, a proxy for future building, dipped 2.7% in August. Authorizations for one-family homes slipped 1.8% to an 878,000 annual rate.
Over the past six quarters, GDP has been dragged by residential construction in five of them. The Atlanta Fed's GDPNow model currently projects that, in the third quarter, residential investment will shave 0.16 percentage point off growth. On the corporate side, Lennar reported Wednesday that revenue and new orders fell from a year earlier, with margins pressured by price reductions and heavier use of incentives in a higher-rate backdrop.
For households, this mix of slower multifamily activity, higher mortgage rates, and more builder incentives is shaping what gets built, how quickly, and at what price. Local market conditions will do the rest.
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