Overall U.S. housing starts are down, but optimism from economists is growing for single-family construction and homebuyer demand heading into 2025.
Homebuilders started work last month on a seasonally adjusted annual rate of 1.354 million units, according to data released Friday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. That's a notch below both the revised August estimate of 1.361 million and the 1.363 million in September 2023.
A softness in multifamily construction weighed down the numbers, but single-family housing starts hit 1.027 million in September, higher than the revised August figure of 1 million and 973,000 from the same month the prior year. Meanwhile, housing completions in September totaled a seasonally adjusted annual rate of 1.68 million, 5.7% below the revised August estimate of 1.7 million but 14.6% higher than September 2023.
The figures suggest that single-family building is on track for a rebound after elevated interest rates in recent years curtailed demand and development, according to a Wells Fargo housing report released Friday. Last month, the Federal Reserve agreed to cut its benchmark interest rate by half a percentage point to a range of 4.75% to 5%.
"Although mortgage rate movements have been volatile as of late and financing costs remain elevated, we expect the Fed's easing cycle to spur further improvements in the mortgage rate and more single-family building," Wells Fargo said.
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Recent severe weather didn't appear to affect the latest figures, but it could "make the data over the next couple of months noisier than usual," especially in the South, where homebuilding is the strongest, said Nancy Vanden Houten, a senior economist for research firm Oxford Economics.
"We look for starts to begin a recovery that gains more traction next year, eventually pushing starts up to an annualized pace of 1.5 million," she said in a statement. "We expect starts to be supported by lower mortgage rates as the Fed continues to cut interest rates, less restrictive credit conditions for builders and the long-standing need for more supply."
Increasing the supply of homes is key to alleviating affordability concerns for potential buyers, according to Carl Harris, chairman of the National Association of Home Builders.
"And as the election looms, policymakers need to be focused on the supply-side of the market to let builders build," he said in a statement.
The increase in housing starts matched a recent boost in homebuilder sentiment. The NAHB said this week its latest reading on homebuilder confidence in October rose 2 points from September. It was the second consecutive monthly increase after declines over the summer.