Housing Starts (which measure the start of construction on homes) rebounded in September after reaching two-year lows in August, up 7% for the month. While the bulk of the increase came in multi-family units, starts for single-family homes also rose 3.2%. Building Permits, which are indicative of future supply, did decline 4.4% from August while permits for single-family homes reached their highest level in a year.   

What’s the bottom line? Alicia Huey, NAHB Chair, noted that the uptick in single-family construction “was somewhat unexpected” as elevated mortgage rates have dampened home builder confidence. She added that “starts are likely to weaken in the months ahead,” which would further impact already tight supply.

In fact, when we look at the pace of completed homes that will be coming to market (around 1.45 million homes annualized) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 2 million. Even looking at future supply (Building Permits at 1.47 million annualized), we’re still lower than where we need to be.

The bottom line is that more demand than supply will continue to be supportive of home values.