Single-family starts grow in July, but rising rates loom as crucial headwind

Weak resale supply fuels 9.5% yearly gain in single-family home construction

Single-family homebuilding activity rose in July, boosted by anemic supply and healthy pent-up demand, according to the newest figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Single-family housing starts for the month came in at a seasonally adjusted annual rate of 983,000 units, up 6.7% month over month and up 9.5% year over year. Single-family starts made up the vast majority of July’s 3.9% increase in total housing starts, which pushed the overall annualized pace to 1.45 million units. The rate of starts in July for buildings with five or more units was 460,000, unchanged from June and up 0.4% from July 2022.

Demand for single-family supply continues to run high due to the ongoing shortage of existing homes, keeping construction numbers solid even with mortgage rates on the upswing. But the elevated rate environment still looms as a downside risk, said Alicia Huey, chairman of the National Association of Home Builders (NAHB).

“With many homeowners choosing to stay in their existing home to preserve their low mortgage rate, demand for new home construction pushed up single-family starts in July even as builders continue to struggle with increased uncertainty stemming from rising rates,” Huey said. “Builder sentiment has shown that higher mortgage rates are contributing to a decline in buyer traffic, and rates need to stabilize to prevent the housing market from slowing.”

The NAHB cited mortgage rates as the chief reason for the recent decrease in the NAHB/Wells Fargo Housing Market Index, which tracks builder confidence in the new home market. Earlier this week, the index slid six points to a reading of 50. Readings above 50 indicate that more builders view conditions as good rather than poor.

There’s already some evidence that builders are scaling back as housing costs continue to grow. Total permits, for example, dropped 13% year over year in July to a pace of 1.44 million units, although they still managed to eke out an increase of 0.1% from June.

“In fact, multifamily permits are at their lowest three-month moving average since December 2020, another sign that the market is cooling,” said Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis. “In order to bring down shelter inflation, which accounted for 90% of the overall inflation rate last month, we need to enact policies that will allow builders to boost the nation’s housing supply.”


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