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Housing starts surprised on the downside, reflecting headwinds

Census data on new residential construction showed housing starts declined 8% from May, and down 8.1% from June 2022, to 1.434 million

U.S. single-family homebuilding fell in June, but permits for future construction rose to a 12-month high on the weakness of the existing home sales market. The decline in housing starts came after a massive 18.7% surge in May, which propelled the number of starts on single-family projects to an 11-month high.

Housing starts in June dropped to a seasonally adjusted annual rate of 1.43 million, under economists’ expectations for 1.48 million, according to the U.S. Census Bureau. That was down 8.1% from a year ago.

In June, only 600,000 existing homes were listed for sale across the U.S., noted Bright MLS Chief Economist Lisa Sturtevant. 

“While new construction will not immediately solve the supply problem in the housing market, the recovery in the homebuilding industry and the delivery of more new homes is essential for meeting the nation’s housing needs and easing housing affordability challenges for prospective home buyers,” she said in a statement.

Overall, single‐family housing starts in June came in at a rate of 935,000, 7% below the revised May figure of 1,005,000. The June rate for units in buildings with five units or more was 482,000.

Issued permits, an indicator for future completions, also decreased 3.7% overall from May, and they were 15.3% lower from a year ago. But single-family permits increased (+2.2%) while the more volatile multifamily permits declined (-12.8%). June permits increased in the Midwest (+5.9%) and declined in South (-2.6%), West (-4.0%), and Northeast (-23.4%).

Completed homes fell 3.3% from the prior month, but were 5.5% above the May 2022 level.

The number of single-family homes under construction remains high. Meanwhile, a record number of multifamily units are under construction even if the pace is slowing. 

“When these units are completed, it should put some downward pressure on prices,” said First American Deputy Chief Economist Odeta Kushi.

Homebuilder sentiment regarding single-family sales in the next six months dropped slightly in June, pointing to more uncertainty. This comes at a time when increasing new home inventory is critically important as existing homeowners aren’t moving, handcuffed to their low mortgage rates, noted Nicole Bachaud, a senior economist at Zillow.

Stubbornly high mortgage rates might pose a threat to builders’ ability to bring more homes on the market. Reduced affordability alongside ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans could also throttle builder momentum, added Kushi.

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