June’s surge in housing starts was limited to the multifamily sector, while single-family starts and permits fell. Builder confidence also continues to decline.
At a glance, the latest residential construction numbers suggest that fresh supply could be hitting the market later this year, potentially easing housing affordability woes.
But it’s not happening in the sector where inventory is needed most: single-family residences. And that may not change anytime soon, as builders continue to project a pessimistic outlook.
No momentum for single-family homes: Today’s New Residential Construction report for June shows a spike in housing starts as the summer kicked off. Starts were up 19% from May and rose 3.5% year-over-year, exceeding expectations, but the gains were limited to the multifamily sector. Single-family starts were nearly flat from May to June, dipping 0.2%.
The National Association of Home Builders (NAHB) pointed to higher mortgage rates and construction financing costs as key factors in the sluggish pace of single-family construction.
“Builders continue to face a difficult cost environment,” Danushka Nanayakkara-Skillington, NAHB’s assistant VP for forecasting and analysis, said in response to the June report. “The monthly decline [in single-family starts] underscores the ongoing challenges facing residential construction despite a persistent shortage of available homes.”
No rebound on the horizon: Borrowing costs could remain a barrier for some time, according to Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “Looking further ahead, we don’t see much upside for starts until interest rates move lower,” Vanden Houten said.
Building permits, which provide a longer-term view of where construction is headed, were down 3% overall last month, with single-family permits falling 2.4%.
Confidence continues to fall: The slow pace of starts and permits reflects the ongoing decline in builder sentiment, which fell in July and has lingered below 40 for 15 consecutive months, according to the NAHB’s monthly Housing Market Index survey. A reading above 50 indicates that the majority of builders feel confident about the current and near-term new home outlook.
July’s confidence index of 34 is tied for the lowest level reported so far this year. All three survey measures were down this month, with ratings of current single-family home sales conditions falling one point to 37, future sales predictions dropping two points to 43 and perceptions of buyer traffic down two points to 23.
“Affordability remains the home building industry’s primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market,” NAHB Chief Economist Robert Dietz said.
Some relief could be coming — eventually. “The recently enacted 21st Century ROAD to Housing Act contains important provisions on land-use and zoning, regulatory reform and financing tools that address obstacles…
Read More: New home construction slows amid ‘difficult cost environment’
