A pair of recent reports show the extent of the softening U.S. housing market, with modest July gains in residential construction spending failing to boost optimism following a weak second quarter that saw single-family construction permitting post declines across nearly every type of population statistical area.
Large metropolitan areas and suburban counties reported a 3.8% decline in single-family permitting activity during the second quarter, according to a report released Tuesday by the National Association of Home Builders (NAHB).
Only rural areas, known as micro counties, posted gains during the quarter, according to NAHB data, with the 1.8% increase in single-family permitting marking the fifth consecutive quarter of construction growth in these less densely populated regions.
“Single-family production continues to lag behind last year’s levels due to housing affordability challenges, including persistently high mortgage rates, the skilled labor shortage and excessive regulatory costs,” NAHB Chairman Buddy Hughes noted in a press release.
The home building industry was propped up during the quarter by continued strength in the multifamily sector, as a shrinking homeownership rate has led to a surge in renter households.
“Multifamily market conditions remain stronger than expected, as single-family homeownership sits well out of reach for many households,” NAHB Chief Economist Robert Dietz stated. “Favorable construction dynamics in low-population density areas, such as lower regulation and land costs, have boosted multifamily construction in smaller markets while the high-density areas have seen construction declines.”
The NAHB report follows Monday’s release of monthly U.S. Census Bureau construction data, which found that residential construction clocked in at a seasonally adjusted annual rate of $886.5 billion in July, 0.1% above the revised June estimate of $885.9 billion.
Private single-family construction outlays edged up by 0.1% in July, representing the first increase in five months. And multifamily construction spending actually lost ground in July, with expenditures falling 0.4%, according to Census data.
But Wells Fargo economists Charlie Dougherty, Jackie Benson and Ali Hajibeigi think it’s premature to say that single-family construction is making a comeback based on that spending data.
“Since the spending data do not account for material and labor price changes, it is too soon to say that the recent downdraft in single-family activity has bottomed,” they wrote in an analysis. “Rather, weakening permit activity and low builder sentiment suggests single-family construction is still trending lower against a backdrop of stagnant new home sales and elevated inventories in key builder markets.”
