The numbers: Construction of new U.S. homes rebounded 7% in September to an annual pace of 1.36 million units after a sharp 1.5% drop in the prior month, the Commerce Department said Wednesday.

Economists on Wall Street were expecting a 6.8% rise in starts to 1.37 million. All numbers are seasonally adjusted.

Building permits, a sign of future construction, fell 4.4% to a 1.47 million rate.

Economists expected a 6% decline to 1.45 million.

Housing starts peaked at 1.8 million in April 2022.

Key details: The construction pace of single-family homes rose by 3.2% in September, and apartment-building construction rose by 17.1%.

Housing starts rose in the Midwest, South and West, with the only drop coming in the Northeast.

Permits for single-family homes rose 1.8% in September, while permits for buildings with at least five units or more fell 14%.

Around 1.68 million homes were under construction as of September.

Big picture: Economists say that builders seemed to lose confidence after mortgage rates rose over 7% and they expect housing starts to trend lower in the last few months of the year.

“We think the multi-family sector—where supply is more plentiful—will see more weakness, as builders in that sector are facing a more severe tightening of lending standards,” said Nancy Vanden Houten, U.S. economist at Oxford Economics.

What are they saying? “Looking through the volatility of the month-over-month readings, the pace of homebuilding remains fairly weak, consistent with the high-degree of interest-rate sensitivity of the sector,” said Ali Jaffery, economist at CIBC Capital Markets in Toronto.

Market reaction: Stocks were set to open lower on Wednesday. The 10-year Treasury note yield rose to 4.87% in early trading.

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