Housing Starts Declined 11.3% in August
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Implications:  Housing starts posted the largest monthly decline in over a year in August, falling to the slowest pace since the worst of the COVID pandemic in 2020.  However, we don’t see this as a sign of persistent weakness ahead in home building.  While both single-family and multi-unit projects contributed to the decline, a massive 26.3% drop in the multi-unit category was largely responsible for today’s bad headline number.  Looking at the big picture, during COVID, a combination of extremely low interest rates and pressure to work from home led initially to big migration to the suburbs and high demand for single-family homes.  Then the economy reopened, causing many people to flock back to cities, sparking a boom in apartment projects.  Currently, the number of multi-unit properties under construction is hovering near record levels going back to 1970 when records began. Now it looks like the move back to the cities has petered out leaving a glut of apartments.  In contrast, owners of existing homes are hesitant to list their properties and give up fixed sub-3% mortgage rates, so many prospective buyers have turned to new builds as their best option.  This has created a huge gap in the data, with construction of single-family homes up a modest 2.4% in the past year while multi-unit activity is down 41.6% over the same period.  In other words, home building isn’t falling off a cliff like in the prior housing bust.   Home completions rose 5.3% in August and permits for both single-family and multi-unit properties posted gains. In other recent housing news, the NAHB Housing Index, a measure of homebuilder sentiment, fell to 45 in September from 50 in August.  This is the second decline in eight months and coincides with a recent jump in mortgage rates. An index reading below 50 signals that a greater number of builders view conditions as poor versus good.

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Posted on Tuesday, September 19, 2023 @ 11:15 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.