New residential construction in the United States declined in September, marking one of the slowest paces since the onset of the COVID-19 pandemic, according to federal data released last week. Housing starts fell 5.2% to an annualized rate of 1.22 million units, reaching a four-month low and falling short of all estimates in a recent economist survey.

Single-family home starts dropped to their lowest level in a year, while permits for new single-family homes—an indicator of future building activity—fell to their weakest point since early 2023. The decline highlights ongoing challenges in the housing market, particularly related to affordability pressures aggravated by higher mortgage rates.

The slowdown is also reflected in builder sentiment, which has fallen to a 14-year low. Builders appear hesitant to begin new projects until they can reduce excess inventory. Multifamily housing construction, which encompasses apartment buildings and tends to experience more monthly volatility, decreased nearly 7% during the month.

The broader housing market drag has had a noticeable impact on economic growth, contributing to slower expansion in five of the last six quarters. Prior to this report, the Federal Reserve Bank of Atlanta’s GDPNow model projected a 1.3% annualized decline in residential investment for the third quarter.

Completions of single-family homes in September also reached a low not seen in over six years. Regional data show that starts of single-family homes in the South, the country’s largest homebuilding region, dropped to their lowest monthly level since January. Similar declines were observed in both the West and Midwest regions.

It is important to note that monthly residential construction figures are volatile. The government report itself indicated a 90% confidence interval for the total monthly change ranging from a 17% decline to a 6.6% gain, underscoring the potential for significant short-term fluctuations in the data.