US housing starts slow down - reflect affordability challenges
Elevated mortgage rates and affordability issues could throttle builder momentum, experts say.
US housing starts slowed in June as higher mortgage rates continued to make it harder for eager homebuyers to purchase and for builders to meet pent-up demand.
New residential construction came in below expectations at a seasonally adjusted annual rate of 1.43 million, 8% below the downward revised May estimate of 1.56 million, the Census Bureau said Wednesday. Within this figure, single-family production declined after four straight monthly gains, down 7% month over month to a 935,000 rate. Multifamily starts also declined in June, down 9.9% to an annualized 482,000 pace.
Overall permits fell 3.7% to a seasonally adjusted annual rate of 1.44 million, with single-family authorizations coming in at 922,000 (+2.2%) and multifamily permits at 467,000 (-12.8%).
Builders completed 1.47 million units in June – 3.3% below the annualized revised May estimate of 1.52 million. Single-family housing completions were 986,000, while the rate for units in buildings with five units or more was 476,000.
Despite the lower June reading, several factors paint a promising picture for overall construction activity, according to NerdWallet home expert Holden Lewis.
“Homebuilders started construction on fewer dwellings in June than in May,” Lewis said. “Looking at the bigger picture, construction activity is strong. We’ve seen a two-month surge in construction of single-family houses, which are in short supply. At the same time, builders are breaking ground on fewer apartments.”
Kelly Mangold, principal at RCLCO Real Estate Consulting, highlighted a more positive builder sentiment, which inched higher in July to the highest level since June 2022. “There are many factors that point towards the housing market moving into recovery as builder sentiment continues to improve,” she said.
“Builders are benefitting from the lack of resale inventory, but higher mortgage rates pose a threat. Reduced affordability alongside ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans could throttle builder momentum.”
Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, added that a projected easing in mortgage rates later this year can help improve affordability issues.
“We anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve’s tightening cycle,” Nanayakkara-Skillington said. “In turn, this could bring home buyers back to the market as affordability conditions improve.”
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