Residential construction was mixed in August, with housing starts rising 12.2% while permits fell 10%, the Census Bureau reported Tuesday.
Housing starts were at an annual rate of 1.575 million while permits for future homes came in at an annual rate of 1.52 million.
“Housing starts rose in August, with the majority of the gain coming from multi-family housing starts which were up nearly 30% from their July numbers,” said Kelly Mangold of RCLCO Real Estate Consulting.
“Single-family home starts edged up slightly as homebuilders continue to moderate production levels as the cost of building materials remains at elevated levels and buyers react to rising mortgage rates,” she added.
Regionally, the biggest drop in permits came in the South, where markets were among the hottest. Multi-unit housing starts also fell more than single-family housing starts.
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“With mortgage rates surging past 6%, consumers are feeling the pinch of declining affordability, which may further drive down the price for potential buyers, especially rate-sensitive first-time buyers,” said Odeta Kushi, Deputy Chief Economist at title insurer First American. before the report. “In response, builders are likely to innovate on fewer single-family homes.”
“A slowdown in new construction is concerning as the housing market remains underbuilt relative to demand,” Kushi added. “The demographic tailwinds of millennials continuing to age in their prime home buying years and the lack of inventory of existing homes mean that building new homes is essential to meet housing demand.”
The decline in construction is unlikely to alter the upward path for interest rates, with the Federal Reserve expected to raise interest rates by 75 basis points on Wednesday. The Fed said it would do everything possible to stamp out inflation, even at the expense of the job market and the economy in general.
“As the Fed continues to push short-term interest rates higher to slow the economy, recession risks will remain a concern for investors,” said Jeffrey Roach, chief economist at LPL Financial, on Monday.
“While we don’t think a recession is likely this year, we think it’s roughly a 50/50 proposition in 2023,” Roach added. “And as long as there are concerns about a slowing economy, we could see stable or lower long-term (interest) rates.”