Following Monday’s weaker-than-expected report on homebuilder sentiment, actual data on residential construction data in the form of Building Permits and Housing Starts came in mixed relative to expectations. While Housing Starts missed expectations by 25K (1.358 million versus 1.383 million), Building Permits topped forecasts by 20K (1.473 million versus 1.453 million).

The table below breaks down both reports by the size of units and on a regional basis. In last month’s report, the big miss in Housing Starts was due to a sharp decline in multi-family units, but they drove the 7.0% m/m increase in September with a gain of 17.6%. On a y/y basis, though, multi-family units are still down 31.4%.  On the multi-family front, Building Permits picked up where Housing Starts left off last month with a 14.3% decline on a m/m basis and a 29.7% y/y decline. On a regional basis, the Northeast experienced the largest m/m decline in terms of both Building Permits and Housing Starts.

Taking a longer-term look at Housing Starts on a 12-month average basis, they continued to roll over in September. At an average monthly rate of 1.4 million, Housing Starts are well off the post-COVID peak from mid-2022 but are still above pre-COVID levels just below 1.3 million. So, on that measure and coupled with the spike in rates, one could make a valid argument that the level of Housing Starts has further to fall in the short term.

Looking at the 12-month average of Housing Starts and Building Permits from a shorter-term perspective shows that both indicators remain weak. While Housing Starts briefly stabilized this summer, they’ve resumed their downward trend in the last couple of months. Building Permits have been in a more pronounced downtrend where the 12-month average reading has declined for 14 straight months- the longest streak of declines since the Financial Crisis. Like Housing Starts, though, the current level of Building Permits is still above its pre-Covid peak.

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