By Reade Pickert | Bloomberg
In August, new home construction in the US dropped to its lowest level since June 2020, underscoring the impact of declining housing affordability.
According to government data released on Tuesday, residential starts fell by 11.3% last month, reaching a 1.28 million annualized rate. This decrease was mostly driven by a sharp decline in multifamily construction.
Related: California homebuying pace plummets 32%, reaching a record low
However, there was a pickup in applications to build, which serves as a proxy for future construction, reaching 1.54 million. This is the highest number in nearly a year. Furthermore, permits to build single-family homes accelerated to the fastest pace since May 2022, indicating optimism about future demand.
Due to the recent increase in mortgage rates, housing affordability has hit record lows, resulting in decreased demand. Mortgage applications for home purchases are now at levels not seen since the mid-1990s, and it remains uncertain when borrowing costs will decrease.
Also see: Americans can barely afford homes — a problem for the presidential race
With homeownership becoming increasingly unattainable for many Americans, builder sentiment has declined to a five-month low. However, since existing-home inventory is still extremely limited, there is an opportunity for builders to attract more potential buyers.
“The increase in housing permits in August was driven by multifamily units, as mortgage rates above 7% have pushed many prospective buyers out of the market for single-family homes,” commented Eliza Winger, an economist at Bloomberg.
See more: Homebuyers are canceling purchases at the highest rate in 10 months
Multifamily construction has plummeted to the lowest level since the start of the pandemic, while applications for these projects have increased by nearly 16%, marking the highest number in over a year.
On a regional basis, housing starts declined in all regions except the Northeast, with the West experiencing the largest decrease. This was likely due to Hurricane Hilary, which battered California last month, according to a note from Oxford Economics.
Further insights into the US housing market outlook will be provided by data on existing and new home sales, which will be released later this month.
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