Homebuilders in the United States increased their residential construction activity in October, according to data released by the Census Bureau. However, experts noted that the uptick in activity remains below trend levels.

In October, new residential construction, including both single-family and multifamily homes, rose by 1.9% from the previous month to reach 1.372 million units on a seasonally adjusted basis. Although this represents a 4.2% decline compared to the same month last year, it exceeded the forecast of 1.350 million units predicted by economists surveyed by Bloomberg.

Authorized residential permits, which serve as an indicator of future activity, also saw a modest increase of 1.1% in October, reaching 1.487 million units. While this figure is 4.4% lower compared to October 2022, it surpassed the predicted 1.450 million units forecasted by economists.

Jeffrey Roach, Chief Economist at LPL Financial, commented on the rebound in housing starts, attributing it to an increase in multifamily units. However, Roach noted that both permitting activity and home building still remain below trend levels, leaving room for potential growth in the coming year.

The data revealed that multifamily construction has experienced a slowdown after a period of significant growth, leading to a surge in new supply. CoStar Group's analysis indicated that 558,000 multifamily units were completed in 2023, contributing to a nationwide deceleration in rent growth. In October, rent growth remained steady at a flat rate of 0.1% annually for the second consecutive month, according to RealPage.

The slowdown in multifamily construction can be attributed to the easing rent growth, which has prompted builders to take a step back from constructing more apartments. Orphe Divounguy, Senior Economist at Zillow, explained that builders respond to higher prices, and as rent growth slows, the incentive to build more apartments diminishes.

On the other hand, single-family home starts experienced a slight increase of 0.2% in October, reaching 970,000 units. Authorizations for new single-family developments also rose by 0.5%, surpassing September's figures.

Uncertainty surrounding mortgage rates has impacted the business outlook for public homebuilders like D.R. Horton Inc. (DHI), resulting in cautious guidance for the next year. However, the National Association of Home Builders (NAHB) forecasts a 5% increase in single-family starts for 2024.

Wall Street analysts are also adjusting their forecasts for housing construction. UBS analysts predict a slightly higher number of single-family housing starts for the current year, with expectations of 914,000 units compared to the previous forecast of 909,000. For 2024, the forecast has been increased to 969,000 units, reflecting a positive outlook for the sector.

While the future looks promising for single-family housing, there are indications of a slowdown in multifamily construction due to the market's absorption of current projects. As a result, adjustments have been made to multifamily housing starts forecasts.

Overall, the housing market faces both challenges and opportunities. Despite the recent increase in construction activity, experts caution that it remains below trend levels, leaving room for potential growth in the coming year.

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