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  • U.S. housing starts drop to lowest level since June 2020

    U.S. housing starts drop to lowest level since June 2020

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    The numbers: Construction of new U.S. homes fell 11.3% in August — falling short of Wall Street expectations — as builders scaled back new projects to focus on completions.

    The pace of construction reversed course and fell as mortgage rates stayed over 7%, dampening home-buying demand. The last time construction of new homes was at this level was in June 2020.

    So-called housing starts fell to a 1.28 million annual pace from 1.45 million in August, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate every month as it did in August.

    Economists on Wall Street were expecting a drop in starts to 1.43 million. All numbers are seasonally adjusted. 

    Housing starts peaked at 1.8 million in April 2022. 

    The number of homes started in July was revised downwards, to an increase of 2% to 1.45 million, from an initial reading of a 3.9% gain. 

    More from MarketWatch: Meet the brave Americans buying and selling their homes, despite stubbornly high interest rates

    New homes have dominated the housing market, but persistently high rates are beginning to spook home builders. In anticipation of waning demand, builders said they’ve started to ramp up price cuts to boost buyer demand in September, according to a survey by the National Association of Home Builders. 

    Building permits, a sign of future construction, rose 6.9% to a 1.54 million rate. That’s the highest level since October 2022.

    Key details: The construction pace of single-family homes fell by 4.3% in August, and apartment-building construction fell by 26.3%.

    But home builders ramped up single-family home construction in the South, where starts rose by 8.1% in August.

    Housing starts fell the most in the West, by 28.9%.

    Permits for single-family homes rose 2% in August, while permits for buildings with at least five units or more surged by 14.8%.

    Around 1.69 million homes were under construction as of August. 

    Big picture: Builders are increasingly concerned about how 7% rates will impact demand, and they’re pulling back on starting new developments as a result. 

    Builder confidence in September fell to the lowest level in five months, according to the NAHB. Home builders are increasingly offering incentives, including cutting prices. The share of builders cutting prices to boost sales rose to the highest level in nine months, the NAHB noted, going up to 32% in September from 25% the previous month.

    Nonetheless, given the long-term need for housing and a decade of underbuilding, builders may not see a sustained drop in demand. 

    What are they saying? Despite starts falling sharply in August, the uptick in building permits “suggests housing starts could pick up modestly again and today’s data could reflect some volatility,” CIBC Economics said in a note. “Nonetheless, the cooling in building activity is a good sign for the Fed which is expecting to limit housing market activity in an effort to contain inflation.”

    Rates have peaked, but “will remain elevated for the rest of the year,” Capital Economics wrote in a note. And this means that with “a slowing economy, we expect this will lead single-family starts to flatten-off at around 900,000 annualised until mid-2024, after which an economic recovery will help spur buyer demand and supporting renewed homebuilder confidence,” they added.

    Market reaction: U.S. stocks
    DJIA

    SPX
    were set to open higher early Tuesday. The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    rose above 4.3%.

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  • U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

    U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

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    The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.

    Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.

    Economists were expecting a slight decline of about 0.8%. The numbers are seasonally adjusted.

    This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.

    The surge in construction this spring was led by the Midwest.

    Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market. 

    Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.

    Key details: As the weather warms up, construction pace has picked up considerably.

    The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.

    Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.

    Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.

    Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.

    Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes. 

    In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday. 

    Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.

    What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note.

    “This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

    “Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”

    Market reaction: U.S. stocks
    DJIA,
    -0.59%

    SPX,
    -0.39%
    were down in early trading on Tuesday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.721%
    rose above 3.7%.

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  • Home builders turn bullish for the first time in nearly a year amid strong housing demand

    Home builders turn bullish for the first time in nearly a year amid strong housing demand

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    The numbers: For the first time in nearly a year, home builders are upbeat about the housing market outlook.

    The shortage of previously-owned sales is helping to buoy builders’ confidence. 

    With mortgage rates above 6%, many homeowners find little incentive to sell—nearly 92% have an outstanding mortgage with a rate below 6%, according to a recent survey conducted by Redfin
    RDFN,
    -0.37%    ,
    a brokerage and real estate listings company. And 23.5% of homeowners have a mortgage rate of less than 3%. Consequently, the number of new home listings has dropped by 22%, as compared with the same period a year ago, according to a Realtor.com housing trends report.

    In turn, home builders are feeling good about their business. The National Association of Home Builders’ (NAHB) monthly confidence index rose 5 points to 55 in June, the trade group said Monday.

    This is the sixth month in a row that sentiment has improved among builders. It is also the first time in 11 months that builder confidence has moved into positive territory of above 50.

    The June reading of 55 was the strongest since July 2022. A year ago, the index stood at 67.

    Key details: Builders were starting to pull back on sales incentives. The share of builders cutting prices to boost sales has dropped to 25% in June, from a peak of 36% in November 2022.

    The typical builder was cutting prices by 7% in June, the NAHB said.

    The three gauges that underpin the overall builder-confidence index were up.

    • A reading on current sales conditions rose by 5 points. 

    • A measure on future sales gained 6 points.

    • A gauge of traffic of prospective buyers rose by 4 points. 

    Big picture: Due to pandemic-era monetary policies that depressed mortgage rates, the home buyers, real-estate agents, mortgage brokers and the rest of the industry are stuck trying to find solutions to a major supply crunch of homes.

    Builders seem to be one of the few participants who have benefited from the supply crunch, given the nature of their business of new construction. The homebuilder ETF,
    XHB,
    -0.38%    ,
    is up 25% year-to-date. 

    What the NAHB said: “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” Robert Dietz, chief economist at the NAHB, wrote.

    And with the “Federal Reserve nearing the end of its tightening cycle,” the statement read, it’s “good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

    Markets were closed on Monday in observance of the Juneteenth holiday.

    Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.

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