Why Builders Are Upbeat About Dip in Housing Starts

October 18, 2019

Total housing starts dropped 9.4% month over month in September to a seasonally adjusted annual rate of 1.26 million units, the U.S. Commerce Department reported Thursday. The multifamily sector, which includes apartments and condos, plummeted 28.2% in September to a pace of 338,000. However, single-family housing starts fared much better, rising 0.3% to 918,000 units.

Overall, builders are happy with the numbers. “Multifamily housing starts fell from an unsustainably high level in August and are running at a solid pace despite the sharp monthly decline,” explains Robert Dietz, chief economist at the National Association of Home Builders. “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.”

Regionally, combined single-family and multifamily homebuilding rose 6% in the South in September, but declined by 12.2% in the West, by 6.2% in the Midwest, and by 0.6% in the Northeast.

Housing permits, a gauge of future construction, dropped 2.7% in September to a 1.39 million annual pace. Single-family permits rose 0.8% while multifamily permits dove 8.2%, the Commerce Department reports. “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, NAHB chairman. “However, builders are still being somewhat cautious as they continue to deal with supply-side challenges which impact housing affordability.”

Housing shortages remain problematic for the real estate market, says Lawrence Yun, chief economist at the National Association of REALTORS®. “Apartment vacancy rates are low, and the number of homes listed for sale are just not enough,” Yun says. “Naturally, developers should be boosting home construction to relieve the tight supply. To a degree, it is moving in the right direction: Single-family housing starts rose a notch in September and are higher by 4% from a year ago. But multifamily starts, which have been predominantly apartments and not condominiums, sharply declined.”