Single-family housing permits fell by 2.3% in June, with groundbreakings settling to their lowest level since October 2023.
This is a direct result of low builder sentiment, high mortgage rates, and decreased demand, according to housing finance analysts. However, there is a bright spot in that the number of new homes completed in the same time frame actually rose.
June's housing completions increased by 10.1% from May and 15.5% annually. Single-family completions came in at a pace of 1.037 million units, up 1.8% from May and 3.2% year over year, but multifamily completions rose 26.2% month over month and 40.2% year over year to a pace of 656,000 units, according to the National Association of Home Builders (NAHB).
“Future single-family supply as measured by permits and housing starts is down this month, but completions, which is new supply added to the market, is higher,” First American Deputy Chief Economist Odeta Kushi noted of the new data. “With more new homes coming on the market, new housing inventory is higher than it was a year ago, a modest improvement for home buyers.”
Overall housing starts increased 3% in June to a seasonally adjusted rate of 1.35 million units, U.S. Census data indicated. Despite single-family starts being down month over month, they rose by 16.1% year over year, according to the NAHB. The multifamily sector, which includes apartment buildings and condos, increased 19.6% to an annualized pace of 373,000.
“Lower single-family starts are in line with our latest builder surveys, which show that while builders are concerned about the current high interest rate environment, they believe that mortgage rates will moderate in the coming months and lead to higher construction in the latter part of 2024,” said Carl Harris, NAHB chairman and custom home builder from Wichita, Kan.
Looking at regional data on a year-to-date basis, permits are 0.8% lower in the Northeast, 3% higher in the Midwest, 0.7% lower in the South, and 3.8% lower in the West.
The total number of single-family homes and apartments under construction was 1.56 million in June. This is the lowest total since January 2022. Single-family homes under construction fell back 1.3%, to a count of 668,000 – down 2.2% from a year ago.
In July, 31% of builders cut prices compared with 29% of builders a month ago, according to the NAHB. The average builder price cut remains stable at 6% for the 13th straight month.
“Despite the challenging environment, the housing market remains structurally underbuilt,” Kushi went on to say. “For more than a decade, homebuilding has not kept up with the demand for shelter, creating a housing supply deficit that has proven difficult to reduce significantly. As builders break ground on additional housing, we will inch closer to balancing our housing deficit.”
Multifamily completions reached a 673,000 seasonally adjusted annual rate in June. This is the fastest pace for apartment completions since May of 1986 and will provide relief for shelter inflation and boost confidence for the Fed to begin cutting interest rates this year.
“With better inflation data, the Federal Reserve is expected to begin rate reductions later this year, and an improving interest rate environment will help buyers as well as builders and developers who are contending with tight lending conditions and high interest rates,” NAHB Chief Economist Robert Dietz pointed out. “And with home inventory at a relatively low 4.4 months’ supply, builders are prepared to increase production in the months ahead. NAHB survey data of forward-looking builder sales expectations saw a gain in July.”
