Erin Sykes, chief economist at Nest Seekers International, weighs in on “The Bottom Line” as high interest rates continue to hurt the housing market.
U.S. single-family home construction fell to its lowest level in a year and a half in July, partly due to the disruption to housing activity caused by Hurricane Beryl, but an increase in new home supply may limit any recovery.
The Commerce Department’s Friday report of a fifth straight month of declines in homebuilding activity suggests the housing market remains sluggish at the start of the third quarter. Aside from the weather, the market continues to be held back by rising mortgage rates and home prices.
“Low interest rates should provide continued support for new home sales, but ongoing oversupply in some regional markets could be a bigger constraint than previously expected,” said Paul Ashworth, chief North American economist at Capital Economics.
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Single-family housing starts, which account for the majority of residential construction, fell 14.1% last month to a seasonally adjusted annualized rate of 851,000, the lowest level since March 2023, according to the Commerce Department’s Census Bureau.
In the densely populated South, single-family home starts fell 22.9%, likely due in large part to the effects of Hurricane Beryl, which struck Texas earlier in the month. Starts in the Northeast also plummeted 27.1%. Starts in the West fell 1.4%, but the Midwest rose 16.8%.
Single-family housing starts fell 14.8% in July from a year earlier. The housing market has weakened following a spring rise in mortgage rates. Residential investment, which includes home construction, fell in the second quarter after three consecutive quarters of increases.
Construction underway at Toll Brothers Borello Ranch Estates residential community on June 4, 2024 in Morgan Hill, California. (Getty/Getty Images)
“Residential construction is unlikely to contribute anything to real GDP growth this quarter,” said Christopher Rupkey, chief economist at FWDBONDS.
Mortgage rates have since fallen on optimism that the Federal Reserve will cut rates next month, but any recovery in housing starts may be limited as new home inventory surges to levels not seen since early 2008.
Supply Concerns
New home construction has been buoyed by a shortage of existing homes for sale, but existing home inventory is also rising from historic lows. The average interest rate on a 30-year fixed-rate mortgage has fallen to 6.45% from a peak of 7.22% in May.
Business confidence among homebuilders fell to its lowest level in eight months in August, according to a survey released Thursday by the National Association of Home Builders. Homebuilders cited “difficult homebuying conditions” as the reason for the fourth consecutive month of declining business confidence.
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“It is costly for homebuilders to keep completed homes on the market, so they appear increasingly hesitant to devote additional resources to increasing the supply of new homes,” said Daniel Bielhaber, an economist at Nationwide.
Starts on residential projects with five or more units rose 11.7% in July to 363,000. Housing starts overall fell 6.8% to 1.238 million, the lowest level since May 2020. Economists surveyed by Reuters had expected starts to fall to 1.33 million.
Workers build a home on June 15, 2023 in Lillington, North Carolina. (Photographer: Alison Joyce/Bloomberg via Getty Images/Getty Images)
Construction starts were down 16.0% year over year. Building permits for single-family homes were down 0.1% to 938,000 in July. Building permits for multifamily homes were down 12.4% to 408,000. Overall building permits were down 4.0% to 1.396 million.
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The number of homes approved for construction that have not yet begun increased 2.6% to 279,000. The number of single-family homes in the waiting list increased 5.1% to 143,000.
Completion rates for the housing sector increased 0.5% to 1.054 million units. Overall housing completion rates fell 9.8% to 1.529 million units.
The number of homes under construction decreased 1.6% to 1.539 million. The inventory of single-family homes under construction decreased 2.1% to 653,000.
