The most recent residential construction report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development was a tale of two outlooks.
Homebuilding activity fell in the short term, with June recording a seasonally adjusted annual rate of 1.43 million units, down 8% from May and 8.1% below the level of June 2022. The pullback partially offset the sizable surge of starts one month prior and halted four consecutive months of increases. Single-family starts fell to a seasonally adjusted annual rate of 935,000, down 7% month over month and down 7.4% year over year. Multifamily starts dipped 11.6% from May to an annualized rate of 482,000 units.
The National Association of Home Builders (NAHB) cited worsening affordability conditions and rising construction costs for the dip.
“Housing starts posted a monthly decline in June as tightening monetary policy helped push mortgage rates up more than a quarter point over the past month,” said Alicia Huey, chairman of the NAHB. “Policymakers need to remove regulatory bottlenecks that impede the housing industry’s ability to increase the production of quality, affordable housing.”
Mortgage rate clarity over the past few months has helped new homebuilding find solid footing, and while this new stepback has coincided with upward rate volatility, the NAHB projects that rate stability moving forward will positively impact the construction industry.
“While builders have slowed construction activity as interest rates have approached 7%, we anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve’s tightening cycle,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.
“In turn, this could bring homebuyers back to the market as affordability conditions improve. And in another sign of cautious builder optimism, single-family permits registered their highest pace since June 2022.”
Indeed, while total building permits were down to a pace of 1.50 million units, a 3.7% dip from May, single-family permits jumped to an annualized rate of 922,000, up 2.2% from May and good for a 12-month high. While multifamily permits plummeted — authorizations for projects with at least five units were down 13.5% to an annualized rate of 467,000 units, the lowest since October 2020 — strength in single-family permitting has experts encouraged about the longer term.
“Note the steady increase in single-family housing permits, a leading indicator of future housing starts,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “There is a significant shortage in the U.S. housing market and existing home supply is insufficient to meet the demand. As a result, builders are stepping up.”
