Construction of New Homes Stalls in July

New home construction plunged in July, according to the Commerce Department. The reports shows that housing starts fell 9.1% in July to a seasonally adjusted annual rate of 1.45 million. That's down from a revised 1.6 million in June, and the lowest level of new home construction since the start of the pandemic in 2020. (1)

I'm Kathy Fettke.

Single-family construction was down even more, at 10.1%. Permits for new homes were also down 1.3%. But the regional numbers are wildly different, with the Northeast seeing a 65.6% increase in total housing starts. The other three regions account for the big drop.

Builders say more homebuyers are canceling contracts because of high prices for homes, mortgages, and the cost of living in general. One in five says they have reduced their home prices in the past month to limit contract cancellations.

The Commerce Department says the average cost to build a home has gone up almost 38% since January of 2020. That, along with rising mortgage rates, and supply-chain issues that cost both time and money, are discouraging many homebuyers.

The National Association of Home Builders Chairman Jerry Konter describes the current market as a "housing recession." But Chief Economist for the National Association of Realtors, Lawrence Yun, says there is a silver lining. With inflation showing signs of a peak, and mortgage rates potentially stabilizing around 5%, he expects renewed buyer activity – especially given the demand for housing and the shortage of homes. (2)

Yun says: "Homebuilders are naturally very cautious about rising unsold inventory during the construction phase. But those completed homes are finding buyers within three months."

He also sees less uncertainty in the housing market as supply chain issues ease up for things like lumber and appliances. Rapidly rising rents are also providing strong incentives for the construction of rental housing.

You'll find a link to the Commerce Department report in the show notes at newsforinvestors.com.

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Thanks for listening. I'm Kathy Fettke.

Links:

1 - https://www.census.gov/construction/nrc/pdf/newresconst.pdf

2 - https://magazine.realtor/daily-news/2022/08/16/builders-concerned-about-sudden-pullback-in-new-home-market