U.S. single-family housing starts and permits fall in September as mortgage rates climb

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US housing starts and permits fall

Highlights

Single-family housing starts fell 4.6% in September to an annual rate of 859,000 units, with permits dropping 4.0% to 845,000 units.
Freddie Mac reported 30-year mortgage rates jumped to 7.40% last week, their highest level in nearly three years, eroding home affordability.
NAHB builder sentiment dropped in October to its lowest since June 2012, citing cost inflation, labor pressures, and reduced demand amid a supply glut.

September housing data signals slower building activity

As reported by Reuters, citing the Commerce Department's Census Bureau, single-family housing starts, which make up the bulk of homebuilding, fall 4.6% in September to a seasonally adjusted annual rate of 859,000 units. Single-family building permits for future construction also decrease 4.0% to an annual rate of 845,000 units.

Mortgage rates have surged in recent weeks, with Freddie Mac data showing the average 30-year fixed rate at 7.40% last week, the highest level in nearly three years. Higher borrowing costs are tracking Treasury yields as the U.S.-Israeli war with Iran continues to fan inflation.

Residential investment rebounded in the second quarter, helped in part by renovations, and made a small contribution to gross domestic product. That gain followed five straight quarterly declines, and the latest September data suggests the sector resumes its downward trend in the third quarter.

Builder sentiment and affordability pressures intensify

A National Association of Home Builders survey released on Monday shows sentiment among single-family homebuilders plunges in October to its lowest level since June 2012. The NAHB cites rising material costs, higher mortgage rates, more expensive diesel and worsening labor conditions amid an immigration crackdown for the deterioration in confidence.

Weak sales have led to a glut of unsold homes on the market, reducing incentives for developers to start new single-family projects. Even with that overhang of new homes, a national housing shortage continues to keep home prices elevated.

Housing affordability remains a central campaign issue ahead of the November 3 midterm election, which will determine control of Congress. President Donald Trump earlier this year refuses to sign a bipartisan housing affordability bill, calling it "a big yawn" while pressing Congress, including Republicans opposing his demands, to first pass separate voting requirements.

In our earlier article on surging long-term Treasury yields, we explained how borrowing costs above 5% are rippling through the economy by lifting mortgage rates and tightening overall financing conditions. We also noted that higher rates are worsening the fiscal outlook as deficits near $2 trillion, while political gridlock after the Nov. 3 midterms reduces the odds of a near-term policy deal that could ease the pressure on households and markets.

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