September’s drop comes as low interest rates have drawn buyers into the market, but rising material costs have pushed prices up.
US homebuilding fell 1.6 percent in September, as builders continued to be stranded by supply chain bottlenecks.
The Commerce Ministry reported on Tuesday that the drop in September left housing construction at a seasonally adjusted annual rate of 1.56 million units, 7.4% above the rate of a year. The August number has been revised up to 1.72 million from 1.62 million.
Building permit applications, a barometer of future activity, fell 7.7% from August to 1.59 million, but are virtually unchanged from September 2020.
Low interest rates and the desire for more space have drawn buyers into the market, but rising material costs and a multi-year supply shortage have driven prices up. Economists and builders have said demand remains strong, even though the median price of a new home is about 20% higher than a year ago.
“Demand dynamics still look positive,” said economist Rubeela Farooqi of High Frequency Economics. “But supply is struggling to catch up given higher input costs and shortages that remain headwinds for builders.”
Apartment construction fell 5.1% from August to September, while single-family home construction was flat from the previous month at 1.1 million units.
Construction activity by region saw declines of 27.3 percent in the northeast and 6.3 percent in the south. The West made the biggest gain, with housing starts up 19.3% from August, while the Midwest advanced 6.9%.
“The story hasn’t changed this year from month to month,” said Stephen Stanley, economist at Amherst Pierpont. “Manufacturers are doing all they can, but it is not enough to cope with the explosion in demand created by the pandemic.”
A monthly survey of builder sentiment by the National Association of Home Builders and Wells Fargo showed sentiment improved to 80 in October, from 76 in September. The index hit a record high of 90 last November.