US Housing Starts Fall to One of the Worst Paces Since Pandemic

(Bloomberg) -- New US residential construction declined in September to one of the weakest paces since the pandemic and building permits for single-family homes slid, highlighting a languishing housing market.

Housing starts decreased 5.2% to an annualized rate of 1.22 million, a four-month low, according to federal government data released Tuesday. The pace trailed all estimates in a Bloomberg survey of economists.

Starts of single-family homes decreased to the lowest level in a year, and applications for permits on those dwellings — a gauge of future construction — dropped to the lowest since early 2023.

The residential real estate market is being constrained by affordability challenges now further compounded by higher mortgage rates. Homebuilders, whose confidence has slumped to a 14-year low, may also be reluctant to begin construction on new homes before making more progress on inventories.

The report showed new construction on multifamily projects, which include apartments and can be volatile on a monthly basis, fell nearly 7%.

Sluggish home construction has weighed on economic growth in five of the last six quarters. Before Tuesday's report, the Federal Reserve Bank of Atlanta's GDPNow forecast penciled in residential investment declining an annualized 1.3% in the third quarter.

Completions of single-family homes last month dropped to the weakest pace in more than six years.

"Housing construction — one of the economic sectors most sensitive to interest rates — is facing intensifying headwinds as mortgage rates have moved significantly higher...With inventories already elevated and builders increasingly pessimistic about future sales, residential construction is likely to remain a drag on interest-rate-sensitive activity in coming months."

Starts of one-family homes in the South, the nation's largest homebuilding region, dropped to the lowest level since January. They also fell in the West and Midwest.

The new residential construction data are volatile, and the government report showed 90% confidence that the total monthly change ranged from a 17% decline to a 6.6% gain.

With assistance from Jeffrey Sparshott and Sarah Cole.