Builders continued to pull back in July, recent data show, as yet another month of high mortgage rates pressured prospective home buyers.
Housing starts in July fell further than expected, dropping to a seasonally adjusted annual rate of 1.45 million, the Census Bureau said Tuesday. The rate missed expectations for a rate of 1.54 million starts, according to FactSet, and was 9.6% lower than June’s revised rate of 1.6 million starts.
Building permits fell less than expected, dropping to 1.67 million from June’s revised rate of 1.7 million. Consensus anticipated a decrease to 1.66 million, according to FactSet.
The two monthly metrics reflect the state of home construction. A housing start is logged when construction begins on a new home, while permits indicate the number of new units authorized in places that require a building permit.
July’s data represent the continuation of a pullback in the construction of single-family homes. Both permits and starts for one-unit construction fell for the fifth time in a row in July to their lowest levels since June 2020.
“A sharp decline in single-family home construction is another indicator that the housing slowdown is showing no signs of abating, as rising construction costs, elevated mortgage rates and supply-chain disruptions continue to act as a drag on the market,” wrote Robert Dietz, the chief economist of the National Association of Home Builders, in a blog post.
The results come one day after the trade group’s gauge of home builder sentiment fell to its lowest point since May 2020.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs has brought on a housing recession,” Dietz wrote yesterday, predicting that single-family starts would decline this year for the first time since 2011.
A majority of builders surveyed by the association attributed falling buyer demand to higher interest rates, Dietz wrote. Of the builders surveyed, 19% said they reduced prices over the past month to limit cancellations or increase sales, he added.
Weekly mortgage rates measured by Freddie Mac rose as high as 5.81% in June as the Fed moved to combat inflation. Rates have fallen since—the average rate on a fixed 30-year mortgage last week was 5.22% this past week—but have remained more than 2 percentage points above the same week a year ago.
While unlikely to return to historic lows seen earlier in the pandemic, there are signs that rates could stabilize, Dietz wrote. “As signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” he said.
Builder stocks were trading lower following Tuesday’s news. Shares of large home builders such as D.R. Horton (Ticker: DHI), Lennar (LEN), NVR (NVR), and PulteGroup (PHM) were trading down between 0.39% and 1.43% Tuesday morning.
Write to Shaina Mishkin at [email protected]