Housing starts backtracked 2% from May to June, according to the new residential construction report released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
The decline left starts at a seasonally adjusted annual rate of 1.56 million units in June, down 6.3% year over year. June’s annualized pace is the slowest seen since September 2021, with the late spring and early summer cooling in construction precipitated by ongoing slowdowns in single-family building activities.
Single-family starts slid 8.1% in June to a pace of 982,000 units, marking the fourth straight month of decreases and slipping to the lowest rate of single-family building since June 2020. Each region of the country saw a retreat in single-family construction, although the backtrack was steepest in the West, where starts plummeted 25.4%.
“The sharp rise in borrowing costs is clearly leading homebuilders to scale back production plans,” Wells Fargo economists Mark Vitner and Charlie Dougherty wrote in reaction to the construction report. “Single-family permits dropped 8% to a 967,000-unit pace, the fourth consecutive drop. Over the past three months, single-family permits have averaged a 1.04 million-unit pace, which is just above the 982,000-unit pace of single-family starts, indicating that the pipeline of activity has not dried up entirely.”
Jerry Konter, chairman of the National Association of Home Builders (NAHB), also cited still-high construction input prices as a key factor in the recent decrease in building activities.
“Single-family starts are retreating on higher construction costs and interest rates, and this decline is reflected in our latest builder surveys, which show a steep drop in builder sentiment for the single-family market,” Konter said. “Builders are reporting weakening traffic as housing affordability declines.”
Multifamily construction, meanwhile, bounced back from a stark decline in May, with starts up 10.3% in June to reach an annualized pace of 577,000 units. Multifamily permitting jumped 11.5% — the largest monthly increase in 2022. The annualized pace of 718,000 multifamily units permitted are far exceeding starts, portending more robust construction numbers for the sector moving forward.
“While the multifamily market remains strong on solid rental-housing demand, the softening of single-family construction data should send a strong signal to the Federal Reserve that tighter financial conditions are producing a housing downturn,” NAHB chief economist Robert Dietz said. “Price growth will slow significantly this year, but a housing deficit relative to demographic need will persist through this ongoing cyclical downturn.”