Housing starts drop in June following strong May showing

Inman News

Despite a 7% drop in single-family housing starts from a month earlier, builder sentiment remains high due to strong demand for new homes, according to Census Bureau data released Wednesday

Housing starts saw a significant drop in June following a month of banner increases in May, when new home construction posted its largest uptick since 2016, the U.S. Census Bureau reported on Wednesday.

Single-family housing starts were at a rate of 935,000, 7 percent below the revised May figure of 1,005,000, failing to meet economists’ expectations. Meanwhile, privately owned housing starts were down 8 percent from May to a seasonally adjusted annual rate of 1,434,000.  That figure was also down 8.1 percent from the June 2022 rate.

The decline in starts came as builder confidence remained high, however, due to a general lack of inventory and need for more new homes.

“Despite the decline, there are many factors that point towards the housing market moving into recovery as builder sentiment continues to improve,” RCLCO’s Kelly Mangold said in a statement. “Home inventory has dropped significantly which has bolstered the new home market, as many existing homeowners hunker down with their sub-3.5 percent mortgage rates.”

Indeed, builder confidence rose five points in June to 55, the National Association for Home Builders (NAHB) reported last month, marking its sixth straight month of increases in confidence and its highest rate since July 2022.

“Builders are benefitting from the lack of resale inventory, but higher mortgage rates pose a threat,” First American Deputy Chief Economist Odeta Kushi said in a statement emailed to Inman. “Reduced affordability alongside ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans could throttle builder momentum.”

Single-family authorizations posted a modest increase from the month before, hitting a rate of 922,000 in June, which was 2.2 percent above the revised May figure of 902,000. Privately owned housing permits dropped, however, declining 3.7 percent month over month and 15.3 percent year over year to a seasonally adjusted annual rate of 1,440,000.

Single-family housing completions in June hit a rate of 986,000, or 2.8 percent below the revised May rate of 1,014,000. Privately owned housing completions were down 3.3 percent from the previous month and up 5.5 percent year over year to a seasonally adjusted annual rate of 1,468,000.

“While down from the peak reached in the spring of last year, there remains an elevated number of single-family homes under construction,” Kushi added. “A record number of multifamily units are under construction. When these units are completed, it should put some downward pressure on prices.

Note the steady increase in single-family housing permits, a leading indicators of future housing starts,” Kushi continued. “There is a significant shortage in the U.S. housing market, and existing-home supply is insufficient to meet the demand. As a result, builders are stepping up.”