Jul
New US home construction increased in June, although a decline in single-family housing starts to an eight-month low underscored challenges in the real estate market due to high interest rates. Total housing starts rose by 3% to a 1.35 million annualized rate last month. This increase was driven by a substantial 19.6% surge in multifamily construction, according to government data released Wednesday. However, starts of single-family homes fell for the fourth consecutive month.
Building Permits Indicate Future Activity
Building permits, which are a proxy for future construction activity, also rose by 3.4% to a 1.45 million annualized rate, largely fueled by an increase in applications for multifamily projects. However, authorizations for single-family homes decreased by 2.3%, reaching the slowest pace in over a year. The robust pace of single-family construction observed at the end of last year is waning. The report also indicated that the number of homes under construction dropped to the lowest level since early 2022. This suggests builders are focusing on aligning inventory with demand.
Economists Weigh In
Stephen Stanley, chief US economist at Santander Capital Markets, noted, “By most accounts, housing demand has been disappointing this spring, which leaves builders with an inventory overhang. The pullback in single-family starts in recent months is the natural response. It would not be surprising to see single-family starts slide somewhat further going forward. Before the report was released. The Federal Reserve Bank of Atlanta’s GDP Now forecast projected a 2.8% annualized decline in residential investment for the second quarter.
US Regulators Mandate New Tenant Protections for Federally Backed Mortgages
In a significant move to enhance tenant rights, US regulators will require landlords with federally backed mortgages to provide tenants
Homebuilder Sentiment Drops
Homebuilder confidence has also declined. The latest index of builder sentiment, compiled by the National Association of Home Builders and Wells Fargo, is now at a year-low. The industry is hopeful that the Federal Reserve will soon reduce interest rates. This optimism is encouraged by a recent inflation report showing cooling price increases across the economy. Mortgage rates have remained near 7% for several months. Builders have been attempting to boost sales by cutting prices and offering incentives such as buying down customers’ mortgage rates. According to the NAHB report, 31% of builders reported cutting prices in July, up from 29% in June.
Housing Completions Reach New High
The Commerce Department’s report also showed a 10.1% jump in total housing completions, reaching the highest level since 2007, primarily driven by a surge in multifamily projects. It is important to note that the housing starts data are volatile. The government report shows 90% confidence that the monthly change ranged from a 7.5% decline to a 13.5% gain. As the housing market navigates these challenges, the future trajectory of interest rates will play a critical role. Additionally, these rates will shape the landscape of new home construction. Additionally, builder strategies will significantly influence the market’s direction.
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