Implications: Housing starts came in weaker than the consensus expected for September, but we expect a sharp rebound in the months ahead. Two key factors held down starts: First, multi-unit starts (apartments), which are normally very volatile, dropped 5.1%. Second, single-family starts plummeted in the South, dropping 15.3%, in large part due to storm impacts from Hurricanes Harvey and Irma. In fact, the South represented 54,000 of the 56,000 decline in starts in September. Strip out that region, and total starts were essentially unchanged from August. According to the Census Bureau, the counties affected by the hurricanes accounted for 26% of new construction authorized in the southern region in 2016, signaling the outsized effect these areas have on headline numbers. Notably, single-family starts rose in every other region in September – the Northeast, Midwest, and West – which supports our view that the fundamentals powering the housing recovery are still in place. In spite of the overall drop in starts for the month, they're still up 6.1% from a year ago. Although overall permits dropped 4.5% in September - and are now down 4.3% versus a year ago - this was entirely due to a decline in multi-family permits. Permits for single-family units, which are more stable from month to month, rose 2.4% in September and are up 9.3% in the past year. Multi-family construction led the way in the early stages of the housing recovery (2011-15). By 2015, 35.7% of all starts were in the multi-family sector, the largest share since the mid-1980s, when the last wave of Baby Boomers was growing up and moving to cities. Since then, the multi-family share of starts has been trending down, currently standing at 26.4%. We expect this trend to continue and view the shift toward single-family construction is a positive sign for the economy because, on average, each single-family home contributes to GDP about twice the amount of a multi-family unit. Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year. And the longer this process takes, the more room the housing market will have to eventually overshoot the 1.5 million mark.
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