September housing starts up after August dip

After a slight retreat in August, the modest improvement in construction activity in September is welcome news, a good but not great report that reflects both soaring builder confidence and also likely some stubborn obstacles preventing the industry from truly finding its top gear.

Permits were up strongly, the best indicator we have of more homes to come in medium-term. But growth in starts has been more fitful, up only slightly from August, perhaps reflecting some combination of hurricane and/or wildfire-related disruptions in activity, ongoing volatility in lumber prices, regulatory hurdles or — most likely — some combination of all of the above.

Single-family construction continues to lead the way, with permits for freestanding, detached homes rising steadily since spring, at the expense of larger multifamily projects that have been more inconsistent.

A historic shortage of for-sale homes on the market and mortgage rates that remain near all-time lows, combined with demographic tailwinds as millennials age into their prime home buying years and a likely pandemic-driven shift in preference toward homes better suited to work, school and play are all keeping demand at a boil.