New housing unexpectedly plunged more than economists projected in June as home builders grappled with the effects of rising interest rates curbing demand for new homes, according to data released Tuesday, adding to signs of an abrupt turnaround in the booming housing market.
The number of housing starts, or new houses on which construction started, fell 2% to about 1.56 million last month despite average economic projections calling for an increase of 1.4%, the Census Bureau reported Tuesday.
Building permits were slightly above expectations, coming in at less than 1.7 million, but fell from May and are down from about 1.8 million in April.
In emailed comments after the release, LPL Financial chief economist Jeffrey Roach said housing starts declined because demand is “quickly drying up” from higher borrowing costs as the Federal Reserve raises interest rates, though he expects home-building activity should hold up despite the grim outlook.
Pantheon Macro chief economist Ian Shepherdson was less optimistic, pointing out single-family starts and permits both fell by 8% in their fourth consecutive month of declines and noting construction activity lags sales, which in turn lag mortgage applications.
Mortgage applications have collapsed more than 25% this year, he adds, suggesting single-family housing construction “needs to fall by [another] 20% or so over the next few months” to be more in line with demand.
The latest data comes one day after the National Association of Home Builders reported the second-worst single-month drop in home builder confidence on record, driven by ongoing production bottlenecks and high inflation that have pushed the cost beyond its market value in some cases.
Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have quickly emerged as the Fed embarks on its most aggressive interest-rate-hiking cycle in two decades to curb high inflation. Mortgage originations jumped from $2.3 trillion in 2019 to more than $4 trillion in 2020 and 2021, but demand has since plummeted to the lowest level in more than two decades. On Friday, real estate brokerage Redfin reported the number of homes for sale nationwide saw its first annual increase since July 2019 last month.
"Home builders need to adjust rapidly to a world with fewer buyers and much more competition from private sellers of existing homes, whose listings jumped by a third in the three months to May—with much more coming," says Shepherdson. "In short, housing construction is nowhere near the bottom."
What To Watch For
There's still a slate of housing data set to be released over the next week. On Wednesday, the National Association of Realtors publishes monthly data on existing home sales, and next Tuesday, S&P releases data on home prices.
Housing Market 'Meltdown' Intensifies: Home Builders Halt Construction As Confidence Plunges To Two-Year Low (Forbes)
Housing Market 'In Free Fall' As New Construction Plummets—Here's When 'Reset' Could Cool Prices (Forbes)
Credit: www.forbes.com /