Housing starts dipped in June, despite strength in the multifamily which rose more than 10%, single family home starts fell an unhealthy 8.1% to an annualized 982,000 rate. This marks the lowest level since September of 2021.
According to the report from the U.S. Commerce Department, residential starts waned 2% overall to a 1.56 million annualized rates. Economists polled by the Wall Street Journal had expected housing starts to rise to a 1.59 million rate.
Also hitting the lowest level since September, applications slowed to 1.69 million units, which is a forward looking indicator, spelling trouble for new home construction.
The housing market is still dramatically short on units to meet demand, despite demand now slowing with mortgage rates rising in reaction to the Federal Reserve’s overdue rate hikes as they struggle to ease inflation. As a result, affordability is pricing would-be homebuyers out of the market.
Home builders continue to struggle with the unpredictability of availability or pricing of materials, coinciding with the ongoing labor shortage.
NAR Chief Economist, Dr. Lawrence Yun said in a statement, “Homebuilders have become extremely cautious about the prospect of single-family home sales, while multifamily activity remains robust.”
“Moreover,” he continues, “housing permits, which can be regarded as a leading indicator for future housing starts, showed a further decline in single-family units and an increase in multifamily units. There have been frequent reports of contract cancellations by buyers of newly constructed homes because they had signed a contract at the early stage of construction when the mortgage rates were low. But, as the completion of construction has taken longer, the home now requires financing at a much higher mortgage rate.”
Redfin’s analysis of MLS data for June unveiled that nearly 60,000 home purchase contracts had been canceled.
“Homebuilders have been facing supply-chain disruptions and many homes started multiple months ago have yet to be completed,” said Dr. Yun. “Homebuilders are waiting to see how these homes will sell before starting new construction. As for the overall market, there appears to be a shift away from homeownership to renting. Additionally, housing supply challenges will continue in the coming months and into next year.”
All graphics above come from NAR.