Recent data from the US government has revealed a noteworthy downturn in the residential construction sector, with housing starts plummeting by 6.8% to a seasonally adjusted annual rate of 1.24 million units in July. This decline comes after a downward revision of the previous month's figures, which were reported at 1.33 million units.
The latest report, issued by the Census Bureau and the Department of Housing and Urban Development, highlights the ongoing struggles within the US housing market intricately tied to high mortgage rates and declining affordability for potential homebuyers. Senior Economist Jay Hawkins at BMO expressed concerns regarding the current state of the market, pointing out that the decrease was particularly pronounced in the single-family home sector, which saw a dip of 14% sequentially and a nearly 15% decline year-on-year.
The annual rate represents a staggering 16% decrease across all housing starts. In contrast, multifamily buildings, defined as structures with five or more units, experienced a month-to-month increase of 12%, yet this segment faced a significant yearly drop of 22%, emphasizing the volatile nature of residential construction activity.
Geographically, the data indicates that housing starts fell in the Midwest, South, and West of the United States, with a remarkable exception in the Northeast, where starts surged by 43%. This regional disparity suggests differing local market conditions and demand levels that further complicate the national housing outlook.
In addition to housing starts, building permits—a key indicator of future construction activity—recorded a 4% decline, landing at just under 1.4 million units, below the market's expectations of 1.43 million. Permits for multifamily dwellings dropped by 12%, while single-family permits saw a marginal decline of 0.1%, reiterating the challenges that homebuilders face amidst the prevailing economic conditions.
Additionally, a year-on-year analysis indicates a 7% overall decrease in building permits. The completion of new homes also faced setbacks, dropping approximately 9.8% month-over-month, culminating in 1.53 million units. Furthermore, insights from the National Association of Home Builders and Wells Fargo reveal that builder confidence has waned in August, driven by the pressures of high interest rates and soaring home prices.
Despite this discouraging data, Hawkins remains cautiously optimistic, noting the potential for a market rebound if the recent decline in mortgage rates stabilizes. Indeed, mortgage applications surged to their highest level since January 2023, with the average interest on 30-year fixed-rate mortgages hovering around 6.54% for loans under $766,550, as reported by the Mortgage Bankers Association.
These fluctuating numbers represent a complex landscape for the housing sector, highlighting both challenges and opportunities as the market adjusts to evolving economic conditions..