Builders started construction on nearly 10% fewer homes in July, with the annual housing starts rate falling to the lowest level since before the pandemic.
Privately owned housing starts in July totaled a seasonally adjusted annual rate of 1.45 million, 9.6% below the revised June estimate and 8.1% below the rate for July of last year, according to the latest report issued jointly today by the U.S. Census Bureau and the U.S. Department of Housing & Urban Development.
The annual rate of 1,446,000 is the lowest since 1,447,000 in February 2021.
Construction of both single-family and multifamily housing was affected. Single‐family housing starts in July totaled an annual rate of 916,000, down 10.1% from the revised June figure and down 18.5% from July of last year. July’s rate is the slowest pace since June 2020.
For buildings with five units or more, the July annual rate was 514,000, also down 10% from June and down 17.4% from July of last year.
Starts skyrocketed in the Northeast, the only region to see an increase. Overall starts were estimated at an annual rate of 230,000, up 65.5% from June and up 228.6% from July of last year. Starts fell in the Midwest (-33.8% from June, -23.6% year over year), the South (-18.7%, -21.5%), and the West (-2.7%, -11.8%).
“The decrease in single-family housing starts mirrors the decline in homebuilder confidence, which turned negative in August, 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.
The National Association of Home Builders (NAHB) said Monday its monthly survey found that builder confidence in the market for newly built single-family homes fell for the eighth straight month in August. The monthly NAHB/Wells Fargo Housing Index fell below the break-even measure of 50, declining six points to 49, for the first time since May 2020, the NAHB said.
“The decline in single-family starts is reflected in our latest builder surveys, as housing demand continues to weaken on higher interest rates while on the supply side builders continue to grapple with higher construction costs,” said Jerry Konter, chairman of the NAHB and a home builder and developer from Savannah, Ga. “Builders are reporting weakening traffic as housing affordability declines.”
Lawrence Yun, chief economist for the National Association of Realtors, said home builders should be more optimistic. "Home builders are naturally very cautious about rising unsold inventory during the construction phase. But these completed homes are finding buyers in three months, which is relatively swift for the new homes market," he said, adding, "If mortgage rates remain near 5% ... there could be renewed buyer activity and additional inventory declines."
Kushi said the Federal Reserve’s recent tightening of monetary policy, which has helped boost mortgage rates, is having an impact on home construction. “Builders are responding to a pullback in demand, as rising mortgage rates have dampened affordability and caused would-be buyers to sit on the sidelines,” she said.
While housing starts fell in July, the number of new homes completed increased. Builders completed construction at an estimated annual rate of 1.4 million homes in July, up 1.1% from June’s revised rate and up 3.5% from a year earlier.
Single-family homes were completed at an annual rate of 1 million in July, down 0.8% from the revised June rate but 7% more than the rate for July of last year. Multifamily homes (with units of five or more) were completed at an annual rate of 412,000 homes in July, up 6.7% from the June revised estimate but down 1.9% from July of last year.
“For the first time since June 2020, single-family completions are higher than starts, as builders focus on finishing existing projects, rather than starting new ones,” Kushi said.
The number of housing units authorized by building permits in July also fell from a month earlier. Overall, permits were authorized at a seasonally adjusted annual rate of 1.67 million, 1.3% below the revised June rate but 1.1% above the July 2021 rate.
Permits for single‐family homes in July were authorized at a rate of 928,000, 4.3% below the revised June rate and 11.7% below the rate for July of last year.
Authorizations for multifamily units, however, increased in July. Permits for buildings with five units or more were at an annual rate of 693,000, up 2.5% from June and up 26.2% from July of last year.
“While builders may respond to the decline in affordability and cooling demand in the purchase market by building fewer single-family homes, it’s possible that they will continue to build more rental units,” Kushi said. “Rents remain elevated, which may incentivize building, despite higher financing costs.”
She added, “The rental and purchase markets are inextricably tied together — a household chooses to rent or buy a home, substituting one for the other based on market conditions, cost effectiveness, and lifestyle preferences. Would-be homebuyers priced out of the purchase market may add to rental demand.”
NAHB Chief Economist Robert Dietz said he believes the housing market, if not the entire economy, has entered a recession, following up on a similar comment he made Monday with the release of the builder confidence survey.
“A housing recession is underway with builder sentiment falling for eight consecutive months while the pace of single-family home building has declined for the last five months,” Dietz said.
