Higher mortgage rates averaging above 7% put a damper on single-family production in August, as builders also continue to face supply-side challenges in the form of elevated construction costs, a lack of skilled labor and a shortage of buildable lots.
Led by a sharp decline in multifamily production, overall housing starts fell 11.3% in August to a seasonally adjusted annual rate of 1.28 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
The August reading of 1.28 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 4.3% to a 941,000 seasonally adjusted annual rate. Single-family starts are 2.4% higher than a year ago. The multifamily sector, which includes apartment buildings and condos, decreased 26.3% to an annualized 342,000 pace.
“High mortgage rates above 7% combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “With high mortgage rates sending buyers to the sidelines, and a nationwide shortage of 1.5 million units, we need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve.”
“Despite higher demand for new construction stemming from a lack of resale inventory, home builders are feeling pessimistic about the housing market because of elevated mortgage rates hovering above 7%,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “Unfortunately, we expect mortgage rates to remain at higher levels as the Federal Reserve is likely to increase rates one more time later this quarter.”
The number of single-family units under construction is down 16.3% compared to a year ago at 676,000. Meanwhile, the number of apartments under construction increased to 1.01 million.
On a regional and year-to-date basis, combined single-family and multifamily starts are 22.8% lower in the Northeast, 13.6% lower in the Midwest, 8.8% lower in the South and 16.5% lower in the West.
Overall permits increased 6.9% to a 1.54 million unit annualized rate in August. Single-family permits increased 2% to a 949,000 unit rate. Single-family permits are also up 7.2% compared to a year ago. Multifamily permits increased 15.8% to an annualized 594,000 pace.
Looking at regional permit data on a year-to-date basis, permits are 22.9% lower in the Northeast, 17.2% lower in the Midwest, 13.3% lower in the South and 18.2% lower in the West.