After a surprising decline in housing starts that perplexed pundits earlier in the summer, new construction ticked up last month, according to the latest new residential construction data from the U.S. Census Bureau.
Total housing starts enjoyed a 3.9% boost in July, climbing to a seasonally adjusted annual rate of 1,452,000 from June’s 1,398,000. Buoyed by lacking existing homes for sale and rising consumer demand for new buildings, the 1.45 million starts are also 5.9% higher annually compared to the 1,371,000 rate that the industry saw in July 2022.
“With many homeowners choosing to stay in their existing home to preserve their low mortgage rate, demand for new home construction pushed up single-family starts in July even as builders continue to struggle with increased uncertainty stemming from rising rates,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB).
Single‐family housing starts managed to overshadow the increase in starts, posting a larger increase of 6.7% in July to a rate of 983,000, up from a revised June figure of 921,000. Permits for single-family homes rose 0.6% in July.
Despite the rebound in single-family starts, the multifamily sector has struggled with declining production. Starts of housing projects with five units or more fell from 482,000 in June to a rate of 460,000 in July. Permits for multifamily housing projects came in at a rate of 464,000 in July.
July’s improved performance is a welcomed change from a surprising and vexing decline that new construction experienced the month before.
With many looking at new construction to fill the void—to some degree—that has been created by the lock-in effect that has taken hold in the existing home supply. NAHB acknowledged that the rising mortgage rates are a concerning factor that will play a larger role in the inventory strain ahead.
“Builder sentiment has shown that higher mortgage rates are contributing to a decline in buyer traffic, and rates need to stabilize to prevent the housing market from slowing,” Huey said.
That, in turn, has weighed on builder confidence in the market. Recent NAHB reports noted that the Housing Market Index (HMI) fell six points in August to 50 (any number over 50 indicates that more builders view conditions as good than poor). All three major HMI indices saw decreases as well.
Total permits declined 13% compared to a year ago, which Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, pointed out could be a sign that builders are slowing construction activity as housing costs rise.
“In fact, multifamily permits are at their lowest three-month moving average since December 2020, another sign that the market is cooling,” Nanayakkara-Skillington said. “In order to bring down shelter inflation, which accounted for 90% of the overall inflation rate last month, we need to enact policies that will allow builders to boost the nation’s housing supply.”
That appeared evident in housing completions, which took a hit in July. The total rate of completed housing construction declined 11.8% last month, tallying a seasonally adjusted annual rate of 1,321,000.
However, single‐family housing completions were up 1.3% in July, posting a rate of 1,018,000 compared to June’s 1,005,000.
