October brings a broad-based upturn in residential construction

Summary

Housing starts and permits rise in October

Home builders and multifamily developers appeared to shrug-off higher interest rates during October. Total housing starts rose 1.9% during the month, with single-family and multifamily starts both notching improvements. A broad-based improvement was also seen in building permits, which increased 1.1% in October. The surprising gain in starts and permits easily exceeded the Bloomberg consensus. Despite rising in October, multifamily developers look to be hitting the brakes alongside more restrictive credit and softer apartment market fundamentals. Although residential construction is highly sensitive to interest rates, a lack of resale supply has boosted sales so far this year. Builders also have been able to offset higher financing costs with mortgage rate buydowns and other pricing incentives. Encouragingly, mortgage rates have trended lower over the past three weeks, although home builders still appear to be put-off by the recent volatility in interest rates and corresponding negative effect on buyer traffic. The NAHB Housing Market Index fell to 34 in November, the lowest reading since December 2022.

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