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U.S. single-family homebuilding plunged in October, underscoring the prolonged struggles of the housing market as high mortgage rates, hurricanes, and a supply crunch weigh heavily on the sector. According to the Commerce Department’s latest report, the residential construction industry remains in the doldrums despite a slight rise in permits suggesting muted future recovery.
Single-Family Starts Tumble Amid Southern Hurricanes
Single-family housing starts dropped 6.9% to a seasonally adjusted annual rate of 970,000 units, following an upward revision of September’s figures to 1.042 million units. This marks a 0.5% year-over-year decline in single-family starts, reflecting the ongoing challenges builders face.
The densely populated South bore the brunt of this downturn, with Hurricanes Helene and Milton devastating key construction areas. Single-family starts in the region plummeted 10.2%, while ground-breaking on housing projects in the Northeast collapsed by 28.7%. Conversely, the Midwest and West saw modest gains of 4.6%.
High Mortgage Rates Stall Progress
The Federal Reserve's aggressive interest rate hikes to combat inflation continue to ripple through the housing market. Mortgage rates, which closely track the 10-year U.S. Treasury note, have climbed back to 5.5-month highs, erasing earlier declines. Despite builders expressing cautious optimism, high borrowing costs are discouraging buyers and limiting new construction.
Goldman Sachs economists recently adjusted their fourth-quarter GDP growth forecast to 2.4%, down from 2.5%, as housing struggles weigh on the broader economy.
Multi-Family Construction Shows Resilience
In contrast, multi-family housing starts surged 9.8% to 326,000 units, reflecting rising demand for rental properties amid affordability challenges in the single-family market. While overall housing starts declined 3.1% to a rate of 1.311 million units, economists view the uptick in multi-family construction as a silver lining.
Permits Signal Cautious Optimism
Building permits, an indicator of future construction activity, edged up 0.5% to 968,000 units for single-family homes – the highest level since April. However, total building permits fell 0.6% due to a 3% decline in multi-family permits. The Northeast and South saw increases, while the Midwest and West experienced drops.
Economists warn that the slight uptick in permits is unlikely to spark a significant rebound. “Builders are focusing on clearing backlogs from 2022 and 2023 rather than initiating new projects,” said Daniel Vielhaber, an economist at Nationwide.
Builders Navigate a Complex Landscape
Despite regulatory optimism following Republican gains in Washington, builders remain cautious. Supply shortages persist, with many homeowners reluctant to sell properties locked in at sub-4% mortgage rates. This dearth of inventory is keeping demand for new construction high but unable to offset the broader challenges.
Stormy Skies Ahead
With hurricanes impacting Southern states and high borrowing costs stifling demand, the outlook for single-family construction remains grim. While multi-family projects offer some reprieve, experts suggest that a recovery will depend on declining mortgage rates and substantial regulatory relief.
