Housing starts dropped in August as mortgage rates hit new highs and affordability eroded for first-time homebuyers.
According to estimates from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts were at a seasonally adjusted annual rate of 1.283 million in August, down 11.3% compared with July and down 14.8% compared with August 2022.
Starts of detached, single‐family homes were at a rate of 941,000, down 4.3% compared with July.
Starts of multi-family homes (five units or more per building) were at a rate of 334,000, down 26.3% compared with the previous month.
Building permits were a bright spot in the August report: They were at a rate of 1.543 million, an increase of 6.9% compared with July but down 2.7% compared with August 2022.
Permits for single‐family homes were at a rate of 949,000, an increase of 2.0% compared with July, while permits for multifamily dwellings were at a rate of 535,000, an increase of 14.8% compared with the previous month.
Housing completions in August were at a rate of 1.406 million, an increase of 5.3% compared with July and up 3.8% compared with August 2022.
“High mortgage rates above 7 percent combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home,” says Alicia Huey, chairman of the National Association of Home Builders (NAHB), in a statement. “With high mortgage rates sending buyers to the sidelines, and a nationwide shortage of 1.5 million units, we need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve.”
“Despite higher demand for new construction stemming from a lack of resale inventory, home builders are feeling pessimistic about the housing market because of elevated mortgage rates hovering above 7 percent,” adds Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis for NAHB. “Unfortunately, we expect mortgage rates to remain at higher levels as the Federal Reserve is likely to increase rates one more time later this quarter.”
Ksenia Potapov, economist at First American, says although builders are showing signs of pulling back, the pipeline of single-family and multifamily units still holds promise for a supply-starved market.
“Despite the slowdown in single-family starts and completions, there is still an elevated number of single-family homes under construction and a near-record number of multi-family units are under construction – promising signs of more housing supply in the pipeline,” Potapov says. “When these units are completed, it should put downward pressure on prices and provide some affordability relief.”
“There remains pent-up demand in the housing market and a lack of resale inventory,” Potapov says. “By offering price discounts and incentives, builders can draw out potential buyers on the sidelines. The National Association of Homebuilders reported that a record share of homebuilders offered sales incentives in September.”
“Potential buyers have turned to the new-home market as resale inventory is limited by existing-homeowners rate-locked into their homes,” Potapov adds. “A slowdown in construction would be concerning, especially as the housing market remains under-built relative to demand.”
Photo: Avel Chuklanov