US single-family housing starts slump to eight-month low
US SINGLE-FAMILY homebuilding fell to an eight-month low in June amid higher mortgage rates, suggesting the housing market was likely a drag on economic growth in the second quarter.
The report from the Commerce Department on Wednesday (Jul 17) also showed permits for future construction of single-family houses dropped to a one-year low last month, indicating that any anticipated rebound in activity, if the Federal Reserve cuts interest rates in September as expected, could be muted.
Nonetheless, new construction remains underpinned by a shortage of previously owned houses for sale. That is keeping home prices elevated and combining with higher borrowing costs to make buying a house unaffordable.
The housing market has been hardest hit by the US central bank’s aggressive monetary policy tightening to quell inflation.
“The country is not building enough single-family homes to alleviate the shortage of affordable housing and this is guaranteed to further inflate the housing price bubble and make the cost of buying a new home even more unaffordable,” said Christopher Rupkey, chief economist at FWDBONDS.
Single-family housing starts, which account for the bulk of homebuilding, fell 2.2 per cent to a seasonally adjusted annual rate of 980,000 units last month, the lowest level since last October, the Commerce Department’s Census Bureau said.
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Data for May was revised higher to show starts for this housing segment dropping to rate of 1.002 million units instead of the previously reported 982,000 units.
Single-family homebuilding fell in the Northeast and the West, but increased in the densely populated South and the Midwest, which is considered a more affordable region.
Single-family housing starts increased 5.4 per cent on a year-on-year basis in June. Homebuilding was strong for much of last year and through the first quarter of 2024 amid a dearth of previously owned houses for sale.
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Momentum, however, fizzled as the average rate on a 30-year fixed-rate mortgage pushed back above 7 per cent in April against the backdrop of high inflation and a strong economy.
With inflation subsiding and financial markets expecting a rate cut in September followed by additional cuts in November and December, mortgage rates have been trending lower.
The rate on the 30-year fixed-rate mortgage averaged 6.89 per cent last week, having dropped from a six-month high of 7.22 per cent in May, data from mortgage agency Freddie Mac showed.
Though homebuilder confidence dropped to a seven-month low in July, the National Association of Home Builders’ measure of single-family sales over the next six months improved. But concerns about slowing economic activity could make builders more cautious about breaking new ground on projects.
Permits for future construction of single-family homes slipped 2.3 per cent to a rate of 934,000 units, the lowest level since May 2023. Residential investment notched double-digit growth in the first quarter, contributing to the economy’s 1.4 per cent annualised growth pace during that period.
Starts for housing projects with five units or more soared 22 per cent to a rate of 360,000 units in June. Overall housing starts advanced 3 per cent to a rate of 1.353 million units.
Economists polled by Reuters had forecast starts would rebound to a rate of 1.300 million units. Starts were down 4.4 per cent from a year ago.
Multi-family building permits surged 19.2 per cent to a rate of 460,000 units. That contributed to lifting building permits as a whole by 3.4 per cent to a rate of 1.446 million units. REUTERS
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