US home construction rose in June, driven by a significant increase in multifamily projects, despite a decline in single-family housing starts to an eight-month low. This indicates a real estate market facing challenges from high-interest rates.
Housing Starts and Permits Data
Total housing starts increased by 3% to an annualized rate of 1.35 million, propelled by a 19.6% surge in multifamily construction, according to government data released on Wednesday. In contrast, starts for single-family homes declined for the fourth consecutive month.
Building permits, which indicate future construction activity, rose 3.4% to an annual rate of 1.45 million, also driven by an increase in applications for multifamily projects. However, authorizations for single-family homes decreased by 2.3%, marking the slowest pace in over a year.
Current Trends in Single-Family Construction
The strong pace of single-family construction seen at the end of last year is waning. The report also indicated a drop in the number of homes under construction to the lowest level since early 2022. This suggests that builders are adjusting inventory levels to better match demand.
“By most accounts, housing demand has been disappointing this spring, which leaves builders with an inventory overhang,” said Stephen Stanley, chief US economist at Santander Capital Markets. “The pullback in single-family starts in recent months is the natural response, and it would not be surprising to see single-family starts slide somewhat further going forward.”
Builder Sentiment and Economic Outlook
Homebuilder confidence has also declined. The latest builder sentiment index from the National Association of Home Builders and Wells Fargo is at its lowest point for the year. The industry hopes that the Federal Reserve will soon reduce interest rates, especially following an inflation report indicating cooling price increases across the economy. Currently, mortgage rates have been hovering near 7%.
Builders have been attempting to boost sales by reducing prices and offering incentives, such as buying down customers’ mortgage rates. According to the NAHB report, 31% of builders reported cutting prices in July, up from 29% in June.
Housing Completions and Volatility
The Commerce Department’s report also highlighted a 10.1% increase in total housing completions, reaching the highest level since 2007, mainly driven by a surge in multifamily projects.
It’s important to note that housing starts data can be volatile. The government report indicated a 90% confidence range for the monthly change, from a 7.5% decline to a 13.5% gain.
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By Proptechbuzz
By Ravi Kumar