Construction of new homes fell 8% in the United States last month

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Washington, D.C. CNN

U.S. home building cooled in June, falling 8% from May’s surprising rise, which came as low inventories in the existing home market continued to boost interest in new homes.

Housing starts, a measure of new home construction, fell to a seasonally-adjusted annual rate of 1.43 million, below economists’ expectations of 1.48 million, according to data released Wednesday by the Office of the census.

The number of units decreased by 8.1% compared to a year ago.

Despite May’s breakout starts and permitting data, June’s numbers showed homebuilders are still struggling with high mortgage rates, high construction costs and limited land on which to build, a said Robert Frick, business economist at Navy Federal Credit Union. More new homes were never going to save a housing market marked by low inventory, expensive homes and high rates, but it has helped this year, especially as the median price of a new home has fallen.

Single-family housing starts, which account for the bulk of construction, fell 7% in June from the revised May figure, to a seasonally adjusted annual rate of 935,000. five or more dwellings, fell 11.6 per cent to 482,000.

Building permits, which track the number of new homes granted, also fell in June, at a seasonally adjusted annual rate of 1.44 million. Permits were down 3.7% from May’s revised rate and 15.3% from a year ago.

Builders are taking advantage of the lack of existing homes for sale as homeowners pull back, but rising mortgage rates pose a threat, said Odeta Kushi, deputy chief economist at First American Financial Corporation.

Reduced affordability, ongoing supply-side challenges and tighter lending standards for acquisition, development and construction loans could dampen builder momentum.

The average 30-year fixed-rate mortgage was 6.67% in the week ending June 22, according to Freddie Mac. Three weeks later, rates had drifted to around 7%. Holding household income constant, rising mortgage rates reduced the buying power of a home by about $10,000, Kushi said.

There remains pent-up demand in the housing market, but higher rates are straining affordability, Kushi said.

Builder confidence remains high despite concerns about rising rates.

A separate survey released Tuesday by the National Association of Home Builders found that the lack of inventory in the existing home market as current homeowners retreat to their ultra-low interest rates continues to boost sentiment. home builders even though their costs remain high.

The National Association of Home Builders/Wells Fargo Housing Market Index gauges market conditions and examines current sales, buyer traffic and the outlook for new home sales over the next six months.

The index rose again in June, marking the seventh straight month that builder confidence rose, and marks the highest level since June last year.

The lack of resale inventory means potential buyers of homes that haven’t been priced off the market continue to seek new construction in greater numbers, said NAHB president Alicia Huey. At the same time, builders are concerned about rising mortgage rates approaching 7% and continue to face supply-side challenges, including the continued scarcity of electrical processing equipment and growing concerns over availability. prizes.

Considering that housing inflation is about 40% of the consumer price index, the best way to alleviate this biggest source of inflationary pressure is to build additional housing for rent and sale, said Robert Dietz , Chief Economist of NAHB.

Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop-and-start process the market will experience as the Federal Reserve is nearing the end of the current tightening. cycle, Dietz said.

Builders are more reluctant to budget prices than they were earlier this year.

The July survey of builders also found that while interest rates remain high, builders’ use of sales incentives has declined as the market has firmed and inventory resale options remain limited. Only 22% of builders said they cut prices in July. That’s down from 25% in June and 27% in May.

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