Homebuilders held back again last month as the cost of building materials remained high and more potential buyers were shut out of the market.
July housing starts, a measure of new home construction, fell 9.6% month over month and 8.1% from a year ago, according to the US Census Desk. After a sharp drop at the start of the spring, housing starts had remained relatively stable until last month.
Separately, a survey released on Monday found that homebuilder confidence fell for the eighth straight month in August as high mortgage rates, lingering supply chain issues and high house prices continued to make less affordable homes for buyers. The National Association of Home Builders / Wells Fargo Housing Market Index is intended to gauge market conditions and examines current sales, buyer traffic and sales prospects over the next six months.
“Continued growth in construction costs and high mortgage rates continue to weaken market sentiment for builders of single-family homes,” said Jerry Konter, NAHB president and Savannah, Georgia builder and developer.
With the exception of spring 2020, when the pandemic first hit, shopper traffic in August was at its lowest level since April 2014, a troubling sign that consumers are now sitting on the sidelines due of rising housing costs, he said.
The slowdown in construction comes as rising mortgage rates and house prices continue to discourage potential buyers. The average rate for a 30-year fixed rate loan has risen two percentage points since January and now stands at 5.22%.
Some builders even said they were lowering their prices to entice buyers.
About one in five homebuilders surveyed said they cut prices in the past month to boost sales or limit cancellations. The median price reduction was 5%.
Tuesday’s housing numbers were, in a nutshell: “Terrible,” according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
July’s housing starts plunge was mostly in single-family homes, which were down 10.1% from last month and 18.5% from a year ago. It was the fifth straight monthly decline in single-family home starts, Shepherdson said. He added that single-family housing starts have now fallen 30% from their peak in November 2020.
And it’s probably not the floor, warned Shepherdson.
“In short, the whole housing sector is now in decline,” he said.
Persistently high construction costs, combined with actions by the Federal Reserve to rein in inflation by raising interest rates, have caused a “housing recession,” said NAHB chief economist Robert Dietz.
“The total volume of single-family housing starts will show a decline in 2022, the first such decline since 2011,” he said. “However, as signs are mounting that the inflation rate is near its peak, long-term interest rates have stabilized, which will provide some stability on the demand side of the market in the coming months. coming.”
The homebuilding data is another blow to the housing market, said Robert Frick, business economist at Navy Federal Credit Union.
High home prices and higher mortgage rates are causing potential buyers to pull out of purchase deals in greater numbers since the peak pandemic months of spring 2020.
“What we need is a slowdown in home price appreciation, but that’s mainly because the supply of existing homes in the market is too low,” Frick said. “Once inventories rise further, we should see price increases slow, and we may even see price declines in some overheated markets. Then, building and buying homes can start to improve.
Although the number of multi-family construction projects fell about 10% from last month, it was still 17.4% higher than a year ago, as builders focused more on the rental market fashionable.
“The drop in multi-family housing starts may just be the normal month-to-month volatility of apartment buildings,” said Lawrence Yun, chief economist for the National Association of Realtors. “What’s important is that multifamily construction is on track this year to reach the highest level of activity in more than 30 years.”
The drop in single-family housing starts to 916,000 annualized units is the smallest since the COVID-19 lockdown months in the spring of 2020 and essentially matches the annual total of 888,000 in 2019 before the pandemic, Yun said.
“Homebuilders are understandably very cautious about increasing unsold inventory during the construction phase,” Yun said. “But those completed homes find buyers within three months, which is relatively quick for the new home market.”