New housing starts unexpectedly plunged more than economists had expected in July – and to the lowest level in more than a year – as homebuilders grappled with a decline in demand for new homes, and while some experts remain optimistic that the market could be due for a quick recovery, others are only increasingly bearish.
The number of housing starts, or new homes that have begun construction, plunged 9.6% to around 1.4 million last month despite average economic projections projecting more than 1.5 million housing starts, the Census Bureau reported Tuesday.
Building permits were slightly above expectations at nearly 1.7 million, but fell about 1.3% from June and are down from around 1.8 million in April.
“Builders are reacting to a pullback in demand,” First American economist Odeta Kushi said in emailed comments, explaining that rising mortgage rates have reduced affordability and “caused potential buyers to s ‘sit on the sidelines’.
On a positive note, permits for multi-family dwellings rose 2.8% last month, helping to offset the sharp 4.3% decline in the single-family sector, and Kushi believes lower lumber prices and still-high rents could prompt builders to build more multi-family units, which are often rented out.
However, others are more cautious: Fitch Ratings released a note on Tuesday morning warning that the likelihood of a severe US housing downturn has risen as homes have become increasingly unaffordable for most Americans .
The firm forecasts only a “moderate pullback” in the housing market, marked by a mid-single-digit decline in activity (such as housing starts and new home sales) next year, but it has also recognized that housing activity could fall by around 30% or more. over a period of several years in the worst case, lowering house prices by 10 to 15%.
“The whole housing sector is now in retreat,” says Pantheon Macro chief economist Ian Shepherdson, noting that the latest data shows multi-family housing starts have peaked after surging since the start of 2021 and reached record levels in construction. Shepherdson predicts the downward trend in construction activity will continue to decline through early 2023, as mortgage applications have fallen 30% from December’s peak and are yet to find of hollow.
Historically high savings rates and low interest rates helped spark a home-buying spree during the pandemic, but the housing market cooled after the Federal Reserve began raising interest rates. interest this year. The latest data comes just a day after the National Association of Home Builders reported that homebuilder confidence fell to its lowest level since May 2020 amid continued growth in construction costs and mortgage rates. highs continue to weaken market sentiment. In a statement, NAHB Chief Economist Robert Dietz said the market had entered a “housing recession” and predicted single-family housing starts would decline in 2022 for the first time since 2011. .
There is even more housing data to be released this week. On Thursday, the National Association of Realtors will release data on last month’s existing home sales. On average, economists predict annualized sales fell about 6% to 5.1 million.
The housing market slump is here: Homebuilders cut prices as buyers cancel contracts and mortgage rates rise (Forbes)
New home construction continues to sink as housing market demand ‘rapidly’ dries up (Forbes)