The number of housing starts tumbled last month, despite signs that the home sales market is heating up again after falling.
Housing starts take into account the change in the number of new residential buildings beginning construction.
New single-family home construction fell 8 percent from May to June, according to July 19 report from the U.S. Census Bureau.
Starts are now at a seasonally adjusted annual rate of 1.43 million, which is an 8.1 percent annual decline from May 2022.
A severe U.S. housing shortage has driven up demand for new homes and sparked new construction, and the scarcity has allowed sellers to jack up their prices.
High Mortgage Rates Puts a Damper on Sales
The once hot housing market tumbled in 2022 after the the Federal Reserve aggressively raised interest rates from near zero at the height of the pandemic to a range of 5.0–5.25 percent.
This caused the once low mortgage rates of minus 3 percent to rise the almost 7 percent level seen today.
As of this week, the average rate on a 30-year fixed-rate mortgage rose to 6.81 percent, according to Freddie Mac, its highest level since November 2022, when it skyrocketed above 7 percent. The rate on an average 15-year fixed-rate mortgage now sits at 6.24 percent.
The shock to the market caused by higher borrowing rates led to a housing recession and lower home prices earlier this year.
The Fed is expected to hike rates this month, after pausing its tightening cycle in June. Central bank officials may raise rates again in September, after reassessing their policy.
Mortgage rates remain high, while prices have started increasing again, partially caused by a lack of supply for existing homes.
Higher mortgage rates have also made existing property owners more reluctant to sell, since many had purchased their homes at lower rates, exacerbating the decline in housing stock.
Many feared they would have to take out new loans at much higher rates to buy again.
Existing home sales in May were down more than 20 percent from the year before.
Only 1 percent of homes in the United States have changed hands this year, the lowest turnover rate in at least a decade, according to Redfin.
“The quick increase in mortgage rates created an uphill battle for many Americans who want to buy a home by locking up inventory and making the homes that do hit the market too expensive,” said Redfin deputy chief economist Taylor Marr.
“The typical home is selling for about 40 percent more than before the pandemic.”
“Mortgage rates dropping closer to 5 percent would make the biggest dent in the affordability crisis by freeing up some inventory and bringing monthly payments down,” he added.
Home Prices Soar as Inventory Shortage Continues
Meanwhile, many potential buyers have been forced to turn to newly constructed homes.
New home sales rose 12.2 percent, to a seasonally adjusted annual rate of 763,000, and were 20 percent higher than in the same month last year.
As early as 2018, Freddie Mac said that more homes also needed to be built to meet high demand and blamed the shortfall on the lack of new single-family home construction.
Mr. Marr said that building more housing was imperative and that federal and local governments could assist by reforming zoning laws, to make the building process easier.
However, building permits, which are a known proxy for future construction, have seen the seasonally adjusted annual rate of new permits in June drop 15.3 percent from May last year.
A lack of new and existing homes on the market is causing home-bidding wars to heat up again in some areas, after a slump, with 46.8 percent of home offers written by Redfin agents last month facing competition.
All of this has led to rising home prices, with more than half of the 50 biggest U.S. housing markets witnessing prices at or above their 2022 peaks.
Home prices rose 0.7 percent nationally compared with April at a seasonally adjusted rate, according to a report from Black Knight this week. In addition, home prices in May were 0.1 percent higher than the year before.
“There is no doubt that the housing market has reignited from a home price perspective,” said Black Knight’s vice president of enterprise research, Andy Walden,
“Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May.”
