• U.S. housing starts plunged 5.2% in September to 1.221 million, missing expectations, yet Goldman Sachs (GS) kept its Q3 GDP growth estimate at 3.3% annualized.
  • Single-family starts fell 4.6%, multifamily starts dropped 6.7%, and building permits slipped 0.2%. Despite the weakness, Goldman sees the broader economy growing solidly.
  • The divergence highlights housing as a drag within a growing economy, with higher mortgage rates and builder pessimism weighing on the sector.

A Surprising Divergence

U.S. homebuilding weakened sharply in September, but Goldman Sachs isn’t blinking. The investment bank maintained its third-quarter GDP growth estimate at 3.3% annualized, according to a research note, even as housing starts tumbled 5.2% to a seasonally adjusted annual rate of 1.221 million—well below expectations of about 1.305 million. The August figure was revised up to 1.288 million.

The weakness was broad-based. Single-family starts fell 4.6% to 859,000, while multifamily starts dropped 6.7% across buildings with two or more units. The narrower five-or-more-unit category slid 7.2% to 349,000. Building permits, a forward-looking indicator, slipped 0.2% to 1.400 million, but single-family permits fell a more concerning 4.0% to 845,000.

But here’s the catch: the 5.2% monthly decline in starts comes with a 90% confidence interval of ±11.8 percentage points, meaning the change isn’t statistically significant. The Census Bureau itself cautions that it takes roughly six months of data to establish an underlying trend. So while the report is undeniably weak, it’s not a precise measure of the sector’s trajectory.

Why GDP Can Stay Strong

Goldman’s unchanged 3.3% forecast—while not an official GDP result—suggests the housing report didn’t materially alter its overall growth outlook. The apparent contradiction makes sense when you consider that housing starts measure new projects, not ongoing construction. The same release showed 1.280 million homes already under construction, unchanged from August, and completions rose 2.2% to a 1.192 million annual rate. In other words, fewer new starts don’t mean residential construction activity immediately contracts at the same pace.

Still, the weakness is a drag. Reuters (TRI) interpreted the September decline as evidence that residential investment likely resumed its declining trend in the third quarter. The takeaway: housing is a headwind within a growing economy, not a signal that the expansion is at risk.

Builders Under Pressure

The housing slump is being driven by a combination of factors. Mortgage rates have surged, with the average 30-year fixed rate reaching 7.40% in the week prior—the highest in nearly three years, according to Reuters. That raises borrowing costs for buyers and makes it harder for builders to sell new homes.

Sentiment among builders has soured accordingly. The NAHB/Wells Fargo (WFC) homebuilder-confidence index fell three points to 29 on October 19, its lowest reading since June 2012. Measures of current and expected sales also deteriorated.

Industry participants point to additional pressures beyond interest rates. Import tariffs are increasing construction-material costs. The immigration crackdown is worsening labor shortages. And the Middle East conflict is raising energy-related material costs—and, according to Reuters, contributing to higher mortgage rates. These are industry explanations, not a statistical decomposition of the decline, but they underscore the challenging environment.

Goldman’s Broader Strength

Goldman Sachs (NYSE: GS) is acting here as an economic forecaster, not the producer of government data. The bank’s recent earnings underscore its resilience. On October 13, it reported third-quarter net revenue of $18.68 billion and diluted earnings per share of $17.01. Equities revenue jumped 72% to $6.44 billion, showing that capital-markets businesses can thrive even while rate-sensitive housing struggles.

Leadership remains stable. David Solomon is still chairman and CEO, and he stated on the earnings call that there is “no succession transition or timeline underway,” quelling speculation about a change at the top. Strategically, Goldman continues to retreat from non-core consumer banking and focus on Global Banking & Markets and Asset & Wealth Management.

What to Watch

The next construction report is due November 18. The key question is whether September’s weakness persists through revisions and subsequent releases. For now, the data paints a picture of a housing sector under pressure from high financing costs and cost inflation, but not yet dragging the broader economy into a downturn. As Goldman’s forecast suggests, the U.S. economy appears to be holding up—at least for now.

Clarification: An earlier version of this article misstated the percentage decline in multifamily starts. It is 6.7%, not 6.9%.