New U.S. home construction declined in September and permit applications for
Residential starts decreased 8.1% last month to a 1.44 million annualized rate, according to government data released Wednesday. Single-family homebuilding dropped to an annualized 892,000 rate, the slowest since May 2020. Construction of multifamily dwellings also declined.
Applications to build, a proxy for future construction, rose to an annualized 1.56 million units, led by multifamily properties. Permits for construction of one-family homes fell 3.1% to a more than two-year low of 872,000 in September.
The housing market is bearing the brunt of the Federal Reserve's interest-rate hikes as they aim to free the economy of stubborn inflation. The real-estate sector is especially susceptible to rising borrowing costs, and the Fed is projected to push ahead with another 75 basis-point increase in early November.
"I highly doubt that we are nearing a bottom in housing starts," Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said in a note. "There is most likely more pain to come."
Homebuilder sentiment has declined every month this year, and is now at the worst level since the early days of the pandemic, according to data released Tuesday. An S&P supercomposite index of builder stocks has slumped about 35% so far this year, compared with a roughly 22% drop in the S&P 500.
The slowdown in demand this year, paired with consistent hiring, has led to some easing in labor constraints for builders. Construction payrolls are at their highest since 2007.
The government's report showed greater homebuilding progress as well, with the number of houses completed rising to a four-month high.
Groundbreaking fell in three of four regions, led by a 13.7% drop in the South as fewer multifamily projects were started. In the West, new construction of single-family homes plunged 15.8% to the slowest pace since April 2020.
Existing-home sales for September will be released Thursday, followed by new-home purchase data next week.
