Housing starts in June, a measure of new home construction during the month, fell 2% month over month and 6.3% from a year ago, according to the US Census Bureau.
Meanwhile, a separate survey released on Monday found that builder confidence this month plunged to its lowest level since the spring of 2020. The National Association of Home Builders/Wells Fargo Housing Market Index is intended to assess market conditions and examines current sales, buyer traffic and sales prospects over the next six months.
“Production bottlenecks, rising home construction costs and high inflation are causing many builders to halt construction as the cost of land, construction and financing exceeds the market value of the home” said Jerry Konter, NAHB president and Savannah builder and developer. , Georgia.
The slowdown in construction comes as rising mortgage rates and home prices continue to discourage potential buyers, said Joel Berner, senior economic research analyst for Realtor.com.
“With mortgage rates at their highest levels since 2008, many potential buyers are being shut out of the housing market, and builders are responding to this depressed demand by launching fewer construction projects,” Berner said.
Fewer new single-family homes in the pipeline
The decline in housing starts was more concentrated in single-family homes, which were down 15.7% from a year ago.
The number of permits for single-family homes and some multi-family buildings also fell in June from May, on a seasonally adjusted basis. All new building permits fell 0.6% from May, while single-family permits fell a more significant 8%. Compared to a year ago, all permits are indeed up 1.4%, but those for single-family homes are down 11.4%
Multifamily construction continues largely because rents are so high.
“Given that nationwide rents are up 14% or more year over year in every month of 2022 so far and active inventory for sale is 28% higher higher than last year, it’s no surprise that builders are currently more fond of multi-family rental construction,” Berner said.
This slowdown in construction comes even as the price of lumber hit a low in June, Berner said. But the relief from these prices might not last long.
“With lumber prices rebounding in July and buyer demand stifled by the rising cost of financing a home purchase, it is unlikely that much progress will be made to close the supply gap for housing anytime soon,” Berner said. “In the meantime, potential first-time home buyers who take a break from their search may find more rental options if multi-family projects continue to receive more attention from builders.”
Housing affordability issues remain
While 13% of builders in the NAHB/Wells Fargo survey said they had cut home prices in the past month to support sales or limit cancellations, affordability issues remain for buyers.
“Significant segments of the homebuyer population are out of the market,” said NAHB chief economist Robert Dietz. “Policymakers need to address supply issues to help builders produce more affordable housing.”
As builders halt or slow new construction, this will weigh on the housing market even more. Housing inventory was already extremely tight, pushing home prices higher. The slowdown in the supply of new homes will only make matters worse.
New homes that are on the market sell quickly in 2.4 months. The norm is around 3 to 4 months, said Lawrence Yun, chief economist at the National Association of Realtors.
“Homebuilders have faced supply chain disruptions, and many houses started several months ago have yet to be completed,” Yun said. “Builders are waiting to see how these homes will sell before starting new construction.
But overall affordability constraints may drive more buyers to rent, he said.
“The housing supply challenges will continue in the coming months and into next year,” Yun said.