Implications:  Homebuilding was disappointing in October, with starts declining 4.6% to a 1.246 million annual rate, the lowest level since 2019 and well short of even the most pessimistic forecast for any Economics group surveyed by Bloomberg.  Looking at the big picture, homebuilders face a huge set of headwinds – 1) the largest completed single-family home inventory since 2009 2) high home prices 3) restrictive local building regulations 4) stricter immigration enforcement making it difficult to find or replace workers, and 5) the uncertainty of tariffs and how they’ll affect building costs.  All of this has translated into building rates reminiscent of 2020—no growth in over five years.  Digging into the details of the report, the drop in October was entirely due to the volatile multi-unit category (which had helped lift overall construction in recent months) retreating 22.0% to the lowest level since January.  Meanwhile, single-family starts rose 5.4% but remain 7.8% lower than a year ago. Building permits weren’t strong either, down 0.2% in October and 1.1% from a year ago, led by a 9.4% decline in single-family permits since October 2024.  The one bright spot was in multi-unit permits which ticked up 0.2% in October and are up 16.3% from a year ago.  One way homebuilders had been combatting sluggish activity is by focusing their efforts on completing projects.  New home completions were red hot in 2024 but have trended lower in 2025.  Completions rose 1.1% in October but are down 15.3% in the past year.  Despite the downward trend, they have still outpaced starts and permits in nine out of the last twelve months.  With strong completion activity and tepid growth in starts, the total number of homes under construction has fallen 10.1% in the last twelve months.  In the past, like in the early 1990s and mid-2000s, this type of decline was associated with a housing bust and falling home prices.  But with the brief exception of COVID, the US has consistently started too few homes almost every year since 2007.  So, while multiple headwinds may hold back housing starts, a lack of construction since the last housing bust should keep national average home prices elevated. The encouraging news is that affordability has shown some signs of improvement.  In October, the average 30-year fixed mortgage rate fell to 6.3%, the lowest level since September 2022. Looking ahead, we anticipate mortgage rates will continue to gradually decline as the Federal Reserve makes modest cuts to short-term interest rates.

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