U.S. Housing Starts and Permits (September 2023)

• U.S. housing starts rebounded in September, but higher rates remain a formidable headwind

• Housing starts rose 7.0% month-on-month (m/m) in September to 1.36 million (annualized) units - below the consensus expectation for 1.38 million units. Revisions to the two prior months were slightly negative, subtracting roughly 10k units from the previous reported tallies.

• Starts in the single-family segment rose 3.2% m/m (or 30k units), reversing some of the pullback seen in August. Multi-family starts jumped by 17.6% m/m (or 59k units) but remained in line with the longer-term decline seen over the past year.

• Residential permits fell by 4.4% m/m to 1.47 million units. The decline was driven by a 14.3% m/m decrease in the multi-family segment, whereas single-family permits rose by 1.8% m/m.

• Among the four Census regions, only the Northeast recorded a monthly decrease in housing starts (-24.6%). Increases in the three other regions were led by the Midwest (+35.3%), followed by the South (+6.5%) and the West (+5.6%).

• Homebuilding activity rebounded in September as the multi-family segment saw an uptick in starts for the first time since May. While the month-to-month increase was sizeable, the segment remains 31.4% below year-ago levels.

• In contrast, the single-family segment has fluctuated modestly over the past three months but remained positive in year-on-year (y/y) terms, coming in at +8.6% y/y in September. Consistent growth in permitting activity is supportive of future single-family construction, while a sharp pullback in multi-family permitting in September may indicate that further volatility lies ahead for the segment.

• A multitude of factors have pushed U.S. Treasury yields higher over the past few weeks, including a hawkish Fed, a looming government shutdown, and heightened geopolitical tensions. This has subsequently pushed mortgage rates well above 7%, which has weighed heavily on housing demand.

• The National Association of Home Builders sentiment index continued to decline in October – falling to its lowest level since January. Sagging sentiment, coupled with the pullback in permitting activity in September, suggests further weakness is on tap for homebuilding activity moving forward.