Housing starts declined in August

Summary

Single and multfamily starts both fell sharply in August

Total housing starts dropped 11.3% to a 1.28 million-unit pace in August. The monthly decline was broad-based, with single-family and multifamily starts falling by 4.3% and 26.3%, respectively. The surprising pull-back in starts stands in contrast to a strong gain in both single-family and multifamily building permits.

The below-consensus housing starts number is a reminder of the month-to-month volatility of residential construction data and is likely more noise than signal. That said, the drop in August should not be completely written off. The recent leg-up in borrowing costs will certainly test builders' ability to lean on incentives to sell homes. Builders have thus far navigated the higher rate environment relatively well, mostly thanks to greater pricing flexibility. As mortgage rates have risen, many builders have successfully offered rate buy-downs and price discounts to incentivize affordability-crunched buyers. However, not every builder has the ability to offer such incentives and thus are more sensitive to upward changes in mortgage rates.

A second consecutive pullback in builder sentiment suggests builders may be starting to reassess plans to scale up production in light of the recent rise in 30-year mortgage rates, which are now hovering above 7%. The NAHB Housing Market Index fell to 45 in September, the lowest reading since April.

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