Groundbreaking on new homes has fallen for the second month in a row (through September) but builders are getting more permits to build. This is a sign, then, that residential construction should regain ground over the next few months, as demand continues to grow.
Indeed, new home construction fell 9 percent, in September, to reach an annual rate of 1.047 million. Groundbreaking on multifamily buildings fell sharply while single-family home construction continues to rise: to 8.1 percent in September, to reach an annual rate of 783,000. This is the highest level since February.
“Single-family construction is maintaining a steady climb, with permits for single-family structures pointing to continued growth ahead,” explains TD Securities USA macro strategist Brittany Baumann. She actually managed to predict that “upward path in single-family home construction” will, in fact, continue through December.
In addition, Naroff Economic Advisors chief economist, Joel Naroff, notes, “Home construction is in decent shape, despite the volatility in the multi-family segment. Activity is growing in the key single-family segment and permit requests are strong.”
New single-family housing construction (“starts”) account for the largest portion of the overall residential housing market.
The most recent numbers, then, increase the likelihood that home construction—which accounts for about 3 percent of the economy—is dragging down the gross domestic product growth, through the third quarter. This marks the second straight period of decline. Still, hiring remains solid and mortgages are low but faster wage gains and more credit would help to improve sales and encourage developers to move forward with new construction projects.
Accordingly, HSBC Securities USA economist Ryan Wang, of New York, explains, “Residential construction may have been a drag on growth in the third quarter. Multifamily construction is starting to level off [while] single-family still seems to be on a gradual growth trend.”
This decline centered, mostly, on apartment complexes, a sector of housing that is often quite volatile. New housing construction on complexes that have at least five units fell nearly 40 percent from just the month before.
Finally, Barclays economist Blerina Uruci comments, “Given this, we see the sharp fall in starts in September as unexpected and anomalous. We expect to see a rebound in housing starts as the building permits begin to come online.”