U.S. housing starts disappoint in September, housing market to recover gradually

The pace of U.S. homebuilding slowed in September, with housing starts dropping to 1,047k annualized. It fell by 103k units. The headline figure was significantly lower than consensus projections, which was for a rise to 1,175k new units. Figures for the previous two months were revised, adding combined 14k units to activity, noted TD Economics.

The drop was totally focused in the multifamily segment, which is highly volatile. Housing starts in this segment dropped 38 percent or 162k units. This was the biggest fall in this segment since 2009. Meanwhile, the single family segment rose robustly by 59k or 8.1 percent, slightly countering the overall decline.

On the other hand, building permits exceeding expectations in September, rising 73k units to 1225k annualized. Most of the rebound in permits was focused in the multifamily sector, which rose by 70k. Single family permits saw a modest rise of 3k in September.

The monthly fall was widespread, with pullbacks registered in South, the Northeast and the Midwest. On the other hand, the pace of homebuilding in the West stayed unchanged from August.

The housing starts report for the month of September was slightly disappointing. This raises certain questions regarding the underlying strength of U.S. homebuilding. However, the drop was totally concentrated in the multifamily segment, which saw a rise in permit in the month. This implies that there is possibility of a recovery in the months ahead as homebuilders break ground on projects for which they have received permits already, stated TD Economics.

Furthermore, the rate of new construction in the single family segment continues to advance, rising to a seven-month high. Hurricane Matthew that made landfall on Southeastern U.S. in the early October might have disturbed certain homebuilding activity in the near-term. This would possibly delay breaking ground on huge projects ahead of its landfall. However, any affect might probably be smoothed in months ahead, added TD Economics.

Single-family starts are likely to stay on the modest upward trend in the near-term, underpinned by continued employment, increasing household income and still low interest rates. Moreover, the dwindling inventor levels of existing homes sales augurs well for new residential construction.

“All in all, these factors suggest that continued gradual recovery in the housing market and homebuilding will remain on track”, said TD Economics.