U.S. home construction fell in August, falling 11.3% from July levels, as mortgage rates remained high amid persistent inflation.
Housing starts, a measure of new housing construction, fell to a seasonally adjusted annual rate of 1.283 million last month, well below expectations of 1.44 million, according to data released Tuesday by the Census Bureau.
This is the lowest level since June 2020.
The number of units started was 14.8% lower than a year ago.
Single-family housing starts, which account for the bulk of construction, fell 4.3% in August from July’s revised figure, to a seasonally adjusted annual rate of 941,000.
After increasing in July, housing starts fell in August as mortgage rates returned to their peak of late 2022.
“The combination of high interest rates, high prices and limited inventory has continued to hurt the real estate market,” said Kelly Mangold of RCLCO Real Estate Consulting. “In many cases, even buying out their same home at current mortgage rates would be out of a buyer’s typical price range. »
More than 90% of homeowners have a mortgage rate below 6% and many have rates closer to 2% or 3%. Few people want to sell and buy a new home with rates now above 7%. This has led to an extremely low inventory of existing homes for sale.
While that was good news for the new residential construction market, it wasn’t enough to counter the affordability factors that dampened purchasing activity last month, Mangold said.
“Motivated buyers could find a bargain as prices stagnate and large builders able to offer mortgage buyouts are able to offer buyers a much more competitive deal than is available in the resale market,” she said, adding that the decline in housing starts shows that builders remain cautious about the impact of future mortgage rate increases on the market.
Homebuilder confidence was weaker in September, according to a separate National Association of Home Builders/Wells Fargo Housing Market Index report released Monday.
The monthly index examines pending sales, buyer traffic and the outlook for new home sales over the next six months. The September figure was the first time in five months that the overall level of builder confidence fell below the break-even threshold of 50.
But moving forward, builders continue to seek permits for the construction of new residences.
Building permits, which track the number of new homes granted, rose in August, climbing 6.9% above the revised July figure to reach a seasonally adjusted annual rate of 1.443 million, the highest level in 10 month.
Permits were still 2.7% lower than a year ago.