Construction began on fewer new homes in June from a year earlier, in part the result of plummeting homebuilder confidence.
The June 2022 residential construction report, released jointly today by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, shows that privately owned housing starts in June were at a seasonally adjusted annual rate of 1.56 million. That was 2% below the revised May estimate of 1.6 million but 6.3% below the June 2021 rate of 1.66 million.
The decline was led by single‐family housing starts, which in June were at an annual rate of 982,000, 8.1% below the revised May figure of 1.07 million and 15.7% below the June 2021 rate of 1.17 million.
The June rate for buildings with five units or more, however, was 568,000, up 15% from May and up 16.4% from June 2021.
By region, housing starts rose in June in the Northeast and West, but fell in the Midwest and South.
“Homebuilder confidence plunged in July for the seventh month in a row, driven by declines in all three components of the index: current single-family home sales, future sales expectations, and traffic of prospective buyers,” said Odeta Kushi, deputy chief economist for First American Financial Corp. “Single-family housing starts in June were at a rate of 982,000, the lowest since 2020. This is 8.1% below the revised May figure and down 15.7% year over year. As homebuilder sentiment falls, so does homebuilding.”
Joel Berner, senior economic research analyst for Realtor.com, cited other reasons for the decline in housing starts.
“New residential construction slipped again in June as challenging financial conditions discouraged potential buyers,” he said. “With mortgage rates at their highest levels since 2008, many prospective buyers are being priced out of the housing market, and builders are responding to this depressed demand by starting fewer construction projects.”
The number of new homes authorized by building permits in June, meanwhile, were at a seasonally adjusted annual rate of 1.69 million, 0.6% below the revised May rate of 1.7 million, but 1.4% above the June 2021 rate of 1.66 million. Kushi described building permits as a “leading indicator of future” housing starts, and noted that June’s figure came in above the consensus expectations of economists.
Permits for single‐family units in June were at a rate of 967,000, 8% below the revised May and 11.4% below the figure for June 2021. Authorizations for buildings with five units or more were at a rate of 666,000 in June, up 13.1% from May and 27.8% from June 2021.
Privately owned housing completions in June were at a seasonally adjusted annual rate of 1.37 million. This was 4.6% below the revised May estimate of 1.43 million, but 4.6% above the June 2021 rate of 1.31 million.
Single‐family housing completions in June were at a rate of 996,000, 4.1% below the revised May rate of 1.04 million.
The June rate for buildings with five units or more was 366,000, down 5.4% from May and 3.7% from a year earlier.
“Homebuilding is a leading economic and housing indicator, and the decline in housing starts suggests housing is slowing,” Kushi said. “Inflation hurts consumer confidence and purchasing power, while higher mortgage rates alongside high home prices dampen affordability. The result? A reduction in home buyer traffic and sales.”
Berner said the decline in construction of new homes is occurring even as lumber prices bottomed out in June. Lumber, he said, spent “most of the month under $600 per thousand board feet, less than half the price of the peak reached earlier this year.”
But with lumber prices creeping back up in July and homebuilder confidence on the decline, he said many builders “are likely hoping to make the best of a bad situation and get homes to market before they can no longer command the prices they hope for.”
He added that, with lumber prices creeping back up this month and homebuyer demand being stifled by the rising cost of financing a home purchase, “it’s unlikely that much progress will be made toward closing the housing supply gap any time soon.”
Kushi disagreed. “One silver lining — home buyers today may have more choices,” she said. “Prior to the pandemic, existing-home inventory made up approximately 90% of total inventory in the housing market. Yet, when the pandemic hit, existing-home inventory fell as homeowners were hesitant to sell for fear of not finding something better to buy.
“In the absence of existing-home inventory, new-home inventory made up a bigger share of the total housing supply, reaching a high of approximately 30% in April 2022,” she continued. “As existing-home inventory begins to rise, buyers may find there is more to choose from, putting downward pressure on the new-home market.”
