July saw a significant increase in single-family homebuilding, which is a positive sign considering the scarcity of previously owned houses. However, the potential growth in new construction might be hindered by the rise in mortgage rates, which have reached levels not seen in nearly two decades. The Commerce Department reported a 6.7% surge in single-family housing starts, reaching a seasonally adjusted annual rate of 983,000 units last month. This marks an improvement compared to the initially reported rate of 921,000 units for June. The West, in particular, experienced a remarkable increase of 28.5% in single-family starts, with the Midwest also seeing a rise of 12.5%. On the other hand, the Northeast and the densely populated South encountered declines of 3.4% and 1.3% respectively. These single-family housing starts reached a seasonally adjusted annual rate of 983,000 units in July. This surge in construction indicates signs of stabilization in the housing market, despite the Federal Reserve’s monetary policy tightening. Homebuilding and new home sales have even seen an increase. However, the recent spike in mortgage rates could adversely affect further progress. According to data from Freddie Mac, the average rate for a 30-year fixed mortgage has risen to 6.96% in recent weeks. This is approaching the peak rate of 7.08% observed in late 2002. These high mortgage rates have caused a decline in confidence among homebuilders. Reports from the National Association of Home Builders reveal that builders are now offering more incentives to attract buyers due to the anticipation of lower sales. In July, housing projects with five units or more saw no change, remaining at a rate of 460,000 units. The demand for rental accommodation has slowed due to higher mortgage rates deterring potential homebuyers. Additionally, there is currently a record stock of multi-family housing being constructed. Therefore, the housing market’s progress could be restrained by the recent increase in mortgage rates. Overall, housing starts experienced a 3.9% increase in July, reaching a rate of 1.452 million units. This exceeded the expectations of economists polled by Reuters. Permits for future construction of single-family homes rose by 0.6% in July, reaching a rate of 930,000 units. While there was a decline in single-family building permits in the Northeast, the Midwest and South saw an increase. The West, on the other hand, remained unchanged. Permits for housing projects with five units or more fell by 0.2%, hitting a rate of 464,000 units, the lowest level since October 2020. Overall building permits saw a slight increase of 0.1% to a rate of 1.442 million units last month. The number of approved houses that haven’t started construction dropped by 0.4% to 277,000 units. The backlog for single-family homebuilding decreased by 0.7% to 140,000 units, while the completion rate for this segment increased by 1.3%, reaching a rate of 1.018 million units. The inventory of single-family housing under construction also experienced a decline of 0.7%, reaching a rate of 678,000 units. Conversely, the stock of multi-family housing under construction rose by 1.1%, reaching a rate of 986,000 units, the highest level recorded since 1970.
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