New housing starts increased 7 percent in September to a seasonally adjusted rate of 1.36 million, or 7.2 percent below the levels seen in September 2022, according to Census data released Wednesday.

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Homebuilders continued to ramp things up in September but struggled to match the levels of productivity seen a year ago, according to new data released Wednesday by the U.S. Census Bureau

New housing starts, representing the amount of single-family homes builders began work on, grew 7 percent between August and September to a seasonally adjusted rate of 1,358,000, or 7.2 percent below the levels seen in September 2022.

Building permits also rose 7 percent from August to a seasonally adjusted annual rate of 1,473,000, or 4.4 percent below the levels seen in September of 2022, according to the Census data.

Housing completions, meanwhile, increased 6.6 percent from August to an annual rate of 1,453,000, 1 percent above the levels seen a year ago.

On a regional and year-to-date basis, combined single-family and multifamily starts are 23.3 percent lower in the Northeast, 12.9 percent lower in the Midwest, 7.8 percent lower in the South and 16.9 percent lower in the West.

The month-over-month jump in construction activity came as h0mebuilder sentiment in the market for single-family homes dropped to the lowest point in 9 months as mortgage rates well above 7 percent hammered builder confidence. Builder sentiment fell four points to a score of 40, the third-consecutive monthly drop in builder confidence. This made the ensuing increase in construction activity a surprise to experts.

“The uptick in single-family production was somewhat unexpected as our latest builder surveys indicate that starts are likely to weaken in the months ahead due to recent higher mortgage rates that were near 7.6 percent in mid-October,” said Alicia Huey, chairman of the National Association of Home Builders. “Meanwhile, builders also continue to face persistent labor shortages, a lack of buildable lots, and higher financing costs for acquisition and development loans.”

Builders have found a small silver lining in the current high mortgage rate environment. Since so few homeowners are willing to list their homes and lose their low mortgage rate, the remaining homebuyers in the market are faced with extremely low inventory of existing homes, leading many to turn to newly built homes as an alternative.

Thirty-one percent of the homes available for sale in August were new construction, according to the NAHB, compared to a historical average of 12 to 14 percent. But high mortgage rates have mostly hammered the sector, data shows, with number of single-family homes under construction in September at 674,000, almost 15% lower than a year ago.

Email Ben Verde

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