Housing Starts Fall to Two-Year Low

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According to the latest U.S. Census Bureau and the U.S. Department of Housing and Urban Development new residential construction statistics for June 2022, privately‐owned housing starts were at a seasonally adjusted annual rate of 1,559,000, a reading that was 2% below the revised May estimate of 1,591,000, and 6.3% below the June 2021 rate of 1,664,000.

Overall, single‐family housing starts recorded in June were at a rate of 982,000—8.1% below the revised May figure of 1,068,000. June’s rate for units in buildings with five units or more was 568,000.

“Today’s new residential construction report from the Census Bureau showed that single-family housing starts fell 8.1% in June to a seasonally adjusted annualized rate (SAAR) of 982,000 units, the lowest level in two years,” said Douglas G. Duncan, Chief Economist at Fannie Mae. “This continues a trend of softening single-family home construction. In contrast, multifamily housing starts jumped 15.6% to a SAAR of 577,000 units. For the second quarter, both single-family and multifamily starts came in close to our expectations.”

The National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) recently reported that builder confidence continues to wane, as newly-built single-family homes posted their seventh consecutive month of declines in July 2022, falling by 12 points to a score of 55. This was the lowest reading of the HMI since 2020, and the second largest single-month drop in the history of the HMI beat only by a 42-point drop at the onset of the pandemic in April 2020.

“Homebuilder confidence plunged in July for the seventh month in a row, driven by declines in all three components of the index: current single-family home sales, future sales expectations, and traffic of prospective buyers,” noted First American Deputy Chief Economist Odeta Kushi. “Single-family housing starts in June were at a rate of 982,000, the lowest since 2020. This is 8.1% below the revised May figure and down 15.7% year-over-year. As homebuilder sentiment falls, so does homebuilding.”

In terms of homebuilding, HUD and the Census Bureau reported that privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of

1,685,000, 0.6% below the revised May rate of 1,695,000, but 1.4% above the June 2021 rate of 1,661,000. Single‐family authorizations in June were at a rate of 967,000—8.0% below the revised May figure of 1,051,000.

“Homebuilding is a leading economic and housing indicator, and the decline in housing starts suggests housing is slowing,” said Kushi. “Inflation hurts consumer confidence and purchasing power, while higher mortgage rates alongside high home prices dampen affordability. The result? A reduction in home buyer traffic and sales.”

One byproduct of the slowdown in sales has been an influx of homes to the nation’s overall supply. Redfin recently reported that inventory has built up once again, as the combination of 5.5%-plus mortgage rates, high home prices, and a faltering economy have pushed more buyers to the sidelines, thereby creating a more balanced marketplace.

“One silver lining—home buyers today may have more choices. Prior to the pandemic, existing-home inventory made up approximately 90% of total inventory in the housing market,” said Kushi. “Yet, when the pandemic hit, existing-home inventory fell as homeowners were hesitant to sell for fear of not finding something better to buy. In the absence of existing-home inventory, new-home inventory made up a bigger share of the total housing supply, reaching a high of approximately 30% in April 2022. As existing-home inventory begins to rise, buyers may find there is more to choose from, putting downward pressure on the new-home market.”

Housing completions in June were at a seasonally adjusted annual rate of 1,365,000, 4.6% below the revised May estimate of 1,431,000, but 4.6% above the June 2021 rate of 1,305,000. Single‐family housing completions in June, as reported by HUD and the Census Bureau, were at a rate of 996,000—4.1% below the revised May rate of 1,039,000.

“With lumber prices creeping back up in July and homebuyer demand being stifled by the rising cost of financing a home purchase, it’s unlikely that much progress will be made toward closing the housing supply gap any time soon,” said Joel Berner, Senior Economic Research Analyst for Realtor.com. “The good news for buyers is that the same phenomenon that has builders spooked–the potential leveling-off of listing prices–may work in their favor in the near future. In the meantime, prospective first-time homebuyers who are taking a pause from their search may find more options to rent if multifamily projects continue to receive more attention from builders.”

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