Single-family home construction retreat continues in June

The total number of homes under construction fell to 1,559 million year-on-year in June from 1,591 million in May, down 2.0 percent. Compared to last year, the total number of starts decreased by 6.3 percent. Total housing permits also fell in June, falling 0.6% to 1,685 million from 1,695 million in May. Total permits are still up 1.4% from June 2021 levels.

The number of launches in the dominant single-family home segment was 982,000 in June from 1,068 million in May, down 8.1%. This is the slowest pace and the first month under one million since June 2020. The number of starts decreased by 15.7% compared to last year (see first diagram). Single family permits fell 8.0% to 967,000 from 1,051 million in May, also the slowest pace and the first month under one million since June 2020 (see first chart).

However, commissioning of multi-family buildings with five or more apartments increased by 15.0% to 568,000 and was up 16.4% year-over-year, while commissioning in the two- to four-family segment fell 69.0% to 9,000 units from 29,000 the previous year. May. The total number of new buildings in multi-family buildings rose by 10.3% to 577,000 in June, showing an increase of 15.6% compared to last year (see first chart).

Permits for apartment buildings for a group of 5 or more people increased by 13.1 percent to 666,000, while permits for the category of two to four apartments decreased by 5.5 percent to 52,000. The total number of permits for apartment buildings was 718,000, up 11.5% MoM and 26.0% more than a year ago (see first chart).

Meanwhile, the National Home Builders Association Housing Market Index, which reflects builder sentiment, fell again in July to 55 from 67 in June. This is the seventh consecutive drop and the second largest monthly decline in the history of the index, bringing the result to its lowest level since May 2020. The index has dropped sharply from recent highs of 84 in December 2021 and 90 in November 2020 (see chart).

According to the report, “Builder confidence plummeted in July as high inflation and rising interest rates brought the housing market to a halt, slashing sales and buyers.” The report adds: “Another sign of a weakening market is that 13% of builders in the HMI survey reported lower house prices last month to support sales and/or limit cancellations.”

All three components of the housing market index fell again in July. The expected single family sales index fell to 50 from 61 the previous month, the current single family sales index fell to 64 from 76 in June, and the potential buyer traffic index fell again to 37 from 48 the previous month. month (see second graph).

Entry costs remain a concern for builders, although lumber and copper prices have eased from recent highs. Lumber recently traded at around $650 per 1,000 board feet in mid-July, compared to peaks of around $1,700 in May 2021 and $1,500 in early March 2022. Copper prices fell to $7,400 per metric ton (see third chart).

Mortgage rates have recently come down, with a 30-year fixed-rate mortgage at 5.50% in mid-July from 5.80% at the end of June. However, rates are still roughly double the early 2021 lows (see chart four).

While the introduction of permanent teleworking for some employees may have provided continued support for housing demand, record high housing prices, combined with rising mortgage rates and deteriorating consumer attitudes, are working to dampen demand. The pressure on housing demand, coupled with higher entry costs, is driving developer sentiment down. Housing prospects are rapidly deteriorating.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 after over 25 years of economic and financial market research on Wall Street. Bob previously led the Global Equity Strategy division of Brown Brothers Harriman, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to joining BBH, Bob was Senior Equity Strategist at State Street Global Markets, Senior Economic Strategist at Prudential Equity Group, and Senior Economist and Financial Markets Analyst at Citicorp Investment Services. Bob holds an MA in Economics from Fordham University and a BA in Business from Lehigh University.

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