Housing starts and building permits in the United States fell in October for the second straight month largely because of the two hurricanes in the South and the recent rebound in mortgage rates.
Housing starts, a key indicator of residential real estate performance within gross domestic product, dropped by a sharp 3.1% in October, while building permits, a proxy for future starts, dropped by 0.6%.
We expect a strong rebound in starts in November and December as rebuilding begins in the South. The South, which accounts for the largest number of starts, posted a decline of 10.2% as the two storms–Hurricane Helene and Hurricane Milton–took their toll.
Whether a rebound in the South will be enough to offset the stagnant activity in other regions because of high mortgage rates is unclear.
We think that the impact of the residential investment component on overall GDP in the fourth quarter will most likely be small.
But the supply and affordability of housing in the United States will continue to be a key issue, and will have a significant impact on inflation, consumer spending and sentiment.
Read more of RSM’s insights on the economy and the middle market.
The total number of starts in October was 1.3 million, marking the 30th straight month of staying below our long-term sustainable level of 1.7 million.
That means housing supply is nowhere near the level that the American buyers need to stabilize prices and improve affordability.
The Fed has not helped the housing market by being less dovish in recent weeks as overall economic growth remains robust and inflation rebounds.
We expect that the problem with housing supply and prices will continue well into next year when growth is expected to remain strong while inflation rises amid tax cuts and higher tariffs.
