Forbes.com:
The private homebuilding rate slid 11.3% from July to August, according to the latest data from the U.S. Census and the U.S. Department of Housing and Urban Development (HUD). August’s housing starts rate was 164,000 less than July’s rate and 14.8% less than August 2022.
Current New Residential Construction Rates
New residential construction refers to any original construction of a single-family residence, a property with less than two apartment spaces, some apartments, condominium units and townhouses. Housing starts are a leading indicator of overall economic health. A decline in housing starts can push an economy into recession, and an increase can stimulate economic growth.
The new construction data for August consists of building permits, housing starts and housing completions:
- Building permits for privately owned houses rose to an annual rate of 1,543,000 in August, a 6.9% increase from July’s revised rate and a 2.7% drip from the previous year’s rate. Single-family permits increased slightly to an annual rate of 949,000—2% above July’s revised rate.
- Privately-owned housing starts were at a seasonally adjusted annual rate of 1,283,000, an 11.3% decrease from July’s revised 1,447,000 rate and 14.8% below August 2022. Single-family housing starts fell 4.3% below July’s revised total of 983,000.
- Housing completions were at 1,406,000 in August, which was a 5.3% increase from July’s revised rate and 3.8% above the previous year’s rate of 1,355,000. Single-family housing completions slowed to an annual rate of 961,000 in August— a 6.6% decrease from July’s revised rate.
Why Are Housing Starts Declining?
As of mid-September, the average rate for a 30-year fixed-rate mortgage is 7.18%, according to Freddie Mac. Rates for 30-year fixed mortgages have sat above 7% since August. Inflation rates remain well above average, as well, sitting at 3.67% in August—1.67% higher than the U.S. Federal Reserve’s targeted 2%.
These factors can negatively affect the U.S. economy, which deters buyers from purchasing new homes.
Builders continue to remain less confident about taking on new projects, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. According to the index, builder confidence fell five points from the previous month to 45, below the break-even measure of 50 points.
“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power,” said Alicia Huey, NAHB chairman and custom home builder, in a news release.
How Are Builders Stimulating Sales?
Builders are reducing home prices to stimulate sales. In September, 32% of builders reduced home prices, which is the largest share of builders reducing prices since December 2022, according to the NAHB. The average price discount sits at 6% for newly-constructed homes.
In early September, 59% of builders reportedly offered sales incentives, more than any month since April 2023. Incentives can include price reductions, financial inducements or structural upgrades.
Housing Starts Forecast
Housing starts are expected to see a 51,000-unit decrease in Q4 of 2023, according to a recent housing forecast by Fannie Mae. The same report predicts an 8.1% drop in housing starts in 2024.
Mortgage rates and inflation will fluctuate together, which may further dictate housing starts in the next quarter.
“Mortgage rates will follow inflation rates in the next few months,” says Melissa Cohn, regional vice president of William Raveis Mortgage. “The rate of inflation continues to drop, mortgage rates will follow right along.”
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