US single-family housing starts near 2.5-year lows as inventory bloat weighs
The Federal Reserve’s rate cuts may not revive the residential market amid job concerns
[WASHINGTON] Single-family home-building in the US plunged to a near 2.5-year low in August amid a glut of unsold new houses, suggesting the housing market could remain an economic headwind this quarter.
The report from the Commerce Department on Wednesday (Sep 17) also showed permits for future single-family home construction dropped last month to the lowest level in more than two years. Some economists said the decline was necessary to manage new housing inventory, currently near levels last seen in late 2007.
“Builders have been plagued with excessive new home inventories for going on about 18 months now,” said Stephen Stanley, chief US economist at Santander US Capital Markets.
“They have made a few half-hearted and ineffective stabs at slowing construction activity, but persistent hopes that homebuyer demand would perk up have been repeatedly dashed. It is past time that builders bite the bullet and cut back on the number of homes they are starting to get inventories under control.”
Single-family housing starts, which account for the bulk of home-building, fell 7 per cent to a seasonally adjusted annual rate of 890,000 units last month, the Commerce Department’s Census Bureau said. That was the lowest level since April 2023.
Groundbreaking for single-family housing projects tumbled 17 per cent in the densely populated south, where economists said most of the over-building had occurred amid a labour market boom. But the region has experienced a significant decline in job openings this year. Home-building rose in the north-east, mid-west and west.
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Starts for housing projects with five units or more decreased 11 per cent to a rate of 403,000 units. This multifamily housing segment is extremely volatile. Overall housing starts dropped 8.5 per cent to a rate of 1.307 million units.
Economists polled by Reuters had forecast housing starts falling to a rate of 1.365 million units. Economists hoped a recent sharp decline in mortgage rates in anticipation of the Federal Reserve resuming its interest rate-cutting cycle would revive the housing market.
The US central bank cut its benchmark overnight interest rate by a quarter-percentage-point to a range of 4 to 4.25 per cent on Wednesday, and projected a steady pace of reductions for the rest of 2025 to help the struggling labour market.
The Fed paused its policy easing cycle in January because of uncertainty over the inflationary impact of US President Donald Trump’s import tariffs.
Housing market in a slump
Stocks on Wall Street extended gains following the rate decision and summary of new economic projections from policymakers, with real estate shares rallying.
The US dollar slipped against a basket of currencies. The yield on the benchmark 10-year US Treasury note, which mortgage rates track, was little changed.
The housing market has been in a prolonged slump following the Fed’s aggressive rate hikes to combat inflation. The relief from easing mortgage rates is, however, likely to be limited by tepid job gains and rising unemployment as companies hold off on hiring because of an uncertain economic outlook.
Falling new house prices and shortages of construction workers as the Trump administration rounds up undocumented immigrants could also constrain home-building.
The rate on the popular 30-year mortgage dropped to an 11-month low of 6.35 per cent last week from around 7.04 per cent in mid-January, data from mortgage finance agency Freddie Mac showed.
Permits for future single-family home-building decreased 2.2 per cent to a rate of 856,000 units, the lowest level since March 2023. Single-family building permits dropped in the south, north-east and west. They rose in the mid-west.
A National Association of Home Builders survey on Tuesday showed sentiment among home-builders remained subdued in September, though expectations for higher sales over the next six months improved. Builders are increasingly cutting prices and offering other incentives to reduce the inventory bloat.
The number of single-family houses approved for construction that were yet to be started slipped 1.5 per cent to 133,000 units. The completions rate for that housing segment surged 6.7 per cent to 1.09 million. The inventory of single-family housing under construction fell 2.1 per cent to a rate of 611,000 units, the lowest level since January 2021.
Building permits for multifamily housing units plunged 6.7 per cent to a rate of 403,000 units. Overall building permits decreased 3.7 per cent to a rate of 1.312 million units, the lowest level since May 2020. Residential construction contracted in the first half of the year, and is expected to again subtract from gross domestic product in the third quarter.
“Consumers’ low confidence and heightened concerns about job security represent ongoing headwinds to demand,” said Samuel Tombs, chief US economist at Pantheon Macroeconomics. “We expect residential investment to remain a drag on GDP growth at least until mid-2026.”
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