Homebuilding in the U.S. fell in September as permits issued to build new homes dropped 1.6%, according to Tuesday's report by the Department of Commerce.

The report found that the number of building permits issued last month fell to 1,589,000, a 7.7% drop from figures posted for August when the number was 1,721,000. The situation was similar for housing starts, which fell by 1.6% to 1,555,000 compared to 1,580,000 in the month before.

The new data comes a day after the National Association of Home Builders found that its members were feeling optimisitc, given the high demand they are experiencing. However, this demand is undercut by concerns that ongoing supply and labor shortages will persist.

Last month, homebuilder sentiment rose after seeing some relief from a drop in the price of lumber from $1,600 to $400. However, a pre-pandemic labor shortage and supply problems over the higher costs of importing other necessary building materials has put a caveat on the upswing in optimism.

The fall in housing permits and construction also takes place at a time when demand for homes is outstripping the available inventory. Some builders have moved onto accelerating the construction of new homes to alleviate this situation, but others have responded by paring back the pace of new construction over fears that buyers will struggle to afford a new home at the current price levels that are pushed up by demand forces and ongoing shortages.

While these struggles are likely to persist in the housing market, the Commerce Department offers a small silver lining. Housing permits for last month were virtually unchanged from the same time in September 2020, but the number of housing starts was 7.4% higher than last year. The easing of COVID-19 concerns and an overall adjustment to the pandemic-era economy may be responsible for this change.