U.S. housing starts drop in September on fall in multifamily segment

U.S. housing starts eased in the month of September. Starts dropped 9.4 percent to 1.26 million units, after surging 15.1 percent in August. Market expectations were for a milder fall of 3.2 percent. Starts were revised down by 11k in July and up by 22k in August for a net gain of 11k.

The fall was driven by the multifamily segment, where starts fell by 28.2 percent, after rising sharply by more than 41 percent in the prior month. The single-family segment grew marginally and extended the winning streak to four consecutive months, with units up 0.3 percent in September.

Permits exhibited a similar narrative to starts, falling 5.3 percent sequentially after rising by more than 8 percent in the prior month. The fall was slightly steeper than expected, and it was concentrated in the multifamily segment. Meanwhile, single-family permits rose mildly by 0.8 percent, extending their winning streak to five months.

The fall was broad based regionally, with starts falling in the double digits in the Northeast and Midwest, while the South and West exhibited more moderate falls. September brings the third quarter to a close, with starts rising 2.1 percent from the second quarter. This follows decent rises of 2.4 percent and 3.5 percent in the first and second quarter respectively.

A strong demand backdrop, along with a general shortage of inventory in the housing market, should continue to push starts higher, noted TD Economics in a research report. Developers are in tune with the positive outlook, with builder sentiment surging to an impressive 20-month high in the first half of October as per the NAHB Housing Market Index.

“All in all, a likely continuation in the upward trajectory in housing starts suggests that residential investment, which has been a consistent growth detractor over the last several quarters, is poised to resume its status as growth contributor toward the latter part of the year”, added TD Economics.