U.S. Housing Starts and Permits (August 2023)

U.S. housing starts fell in August as interest rates pushed higher

• Housing starts fell by 11.3% month-on-month (m/m) in August to 1.28 million (annualized) units, significantly below the consensus expectation for a more modest decline to 1.44 million units. Revisions to the two prior months were slightly positive, adding roughly 15k units to the previously reported tallies.
• Starts in the single-family segment fell by 4.3% m/m (or 42k units), declining for the second time in the past three months. Multi-family starts fell sharply by 26.3% m/m (or 122k units), marking the lowest reading since spring 2020.
• Residential permits rose by 6.9% m/m to 1.54 million units. The uptick was primarily driven by a 15.8% m/m increase in the multi-family segment, whereas single-family permits rose by 2.0% m/m.
• Among the four Census regions, only the Northeast recorded a monthly increase in housing starts (+1.0%). Declines in the three other regions were led by the West (-28.9%), followed by the Midwest (-7.5%) and the South (-4.9%).

Key Implications

• Homebuilding activity faltered in August as higher mortgage rates weighed on the demand for new homes. The decline was centered in the multi-family segment which is down 41.6% year-on-year (y/y) and roughly 20% below the pre-pandemic average for the month of August. In contrast, the single-family segment is up 2.4% y/y and roughly 4.4% above the pre-pandemic average for August. The multi-family sector has struggled under higher interest rates and slower price growth in rental rates, but the 15.8% uptick in permitting activity in August suggests the sector may improve in the coming months.
• In the single-family segment, the NAHB sentiment index has fallen by 11 points over the past two months and now sits below the break-even marker of 50. The declines seen in recent months correlate with the return of 7% mortgage rates, which have continued to weigh on demand and offset the tailwinds provided to the new home market by low resale listings. Although the Federal Reserve is not expected to raise interest rates further when its decision is announced tomorrow, the elevated level of interest rates is still expected to weigh on homebuilding activity over the coming months.  

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