Housing Starts Unexpectedly Strong in September

WASHINGTON - In a surprisingly strong showing, starts of new housing units rose 1.7 percent in September to a seasonally adjusted annual rate of 1.574 million, the Census Bureau reported today.
 
"The housing numbers for September were better than expected, although some rebound in multifamily starts seemed inevitable," said Bruce Smith, president of the National Association of Home Builders (NAHB) and a home builder from Walnut Creek, Calif. "But it's important to note that permits for new construction, which can be an indicator of future activity, decreased by 3 percent, including a 4 percent setback for single-family units.

"Looking at the big picture, it appears that the housing market was flat in the third quarter following a strong first half," Smith said. "We expect about a 10 percent decline in housing activity in the fourth quarter before the market rebounds early next year."

Despite the anticipated decline in housing activity in the aftermath of the Sept. 11 terrorist attacks, Smith remained optimistic about the long-term outlook for housing. "We will take a hit over the next several months, but the fundamentals of the market are sound. Interest rates are around 6.5 percent for fixed-rate mortgages and close to 5 percent for adjustable-rate mortgages, and the underlying demand is strong."

Smith stressed that the September starts and permit figures reflect builder behavior, not consumer actions. "The starts numbers show that builders were still in gear in September, and the permits suggest that they were seeing demand drop off as the month progressed," he said. "This is borne out by NAHB builder polls which indicated positive conditions immediately after the attack, but showed decreased consumer demand and deteriorating market conditions by the early part of October."

Reflecting this decline, NAHB's Housing Market Index (HMI), which is considered a leading indicator for single-family housing, dropped 8 points in October, Smith said. "The HMI, which was conducted in the first two weeks of October,  recorded decreases in every factor that it measures: current sales of new homes, sales expectations for the next six months and traffic of prospective buyers."

Smith added that most of the increase in housing starts in September was in the multifamily sector. "Multifamily rebounded from the previous month with a 6.3 percent increase," he said. "Single-family housing starts increased by only 0.6 percent."

On a regional basis, there were similar disparities, Smith said. Starts decreased 16.6 percent in the Midwest and 11 percent in the Northeast. They increased by 12.5 percent in the West and 7.6 percent in the South. Permits were off to some degree in all regions.

The National Association of Home Builders is a Washington-based trade association representing more than 205,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction.