US housing starts decline as mortgage rates weigh on demand

NEW US home construction declined in September and permit applications for single-family dwellings fell, adding to evidence that the highest mortgage rates in two decades are sapping demand and discouraging new builds.

Residential starts decreased 8.1 per cent last month to a 1.44 million annualised rate, according to government data released on Wednesday (Oct 19). Single-family homebuilding dropped to an annualised 892,000 rate, the slowest since May 2020. Construction of multifamily dwellings also declined.

Applications to build, a proxy for future construction, rose to an annualised 1.56 million units, led by multifamily properties. Permits for construction of one-family homes fell 3.1 per cent to a more than two-year low of 872,000 in September.

The housing market is bearing the brunt of the Federal Reserve’s interest-rate hikes as they aim to free the economy of stubborn inflation. The real-estate sector is especially susceptible to rising borrowing costs, and the Fed is projected to push ahead with another 75 basis-point increase in early November.

“I highly doubt that we are nearing a bottom in housing starts,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said in a note. “There is most likely more pain to come.”

Homebuilder sentiment has declined every month this year, and is now at the worst level since the early days of the pandemic, according to data released on Tuesday. An S&P super composite index of builder stocks has slumped about 35 per cent so far this year, compared with a roughly 22 per cent drop in the S&P 500. 

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The slowdown in demand this year, paired with consistent hiring, has led to some easing in labour constraints for builders. Construction payrolls are at their highest since 2007.

The government’s report showed greater homebuilding progress as well, with the number of houses completed rising to a four-month high.

Groundbreaking fell in three of four regions, led by a 13.7 per cent drop in the South as fewer multifamily projects were started. In the West, new construction of single-family homes plunged 15.8 per cent to the slowest pace since April 2020. BLOOMBERG