US residential construction tops expectations

Housing starts surge despite weak builder sentiment and single-family production

US residential construction tops expectations

Construction of new homes topped expectations in August thanks to burgeoning demand for multifamily housing.

The Census Bureau reported a 12.2% spike in housing starts, up from the revised July estimate of 1.4 million units to 1.58 million in August. Within this overall figure, multifamily starts soared 28% in August to a 640,000 pace. Single-family residential starts posted a much smaller gain – up 3.4% to a 935,000 annualized rate.

“Single-family starts increased slightly, as home builders continue to moderate their production levels as the cost of construction materials remains at elevated levels and buyers react to rising mortgage rates,” said Kelly Mangold, principal at RCLCO Real Estate Consulting.

“While there is no lack of demand from households seeking to purchase – many of these same buyers cannot afford the high prices these new homes command with mortgage rates where they stand today.”

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The slowdown in the single-family market has been reflected in homebuilder sentiments, which have posted declines every month since the start of 2022, according to National Association of Home Builders (NAHB) chairman Jerry Konter.

NAHB’s new survey showed builder confidence in the market for newly built single-family homes dropped for the ninth straight month in September, down three points to 46, the lowest level since May 2014 except for the spring of 2020.

“Today’s housing starts report is more evidence that the housing recession is deepening for the single-family market, with the pace below one million for the last two months,” added Jing Fu, NAHB’s director of forecasting and analysis. “Expected additional tightening of monetary policy from the Federal Reserve, falling builder sentiment, and a 15.3% year-over-year decline in single-family permits points to further weakening for the housing sector. The one bright spot is multifamily construction, which remains very strong given solid demand for rental housing.”

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Overall, building permits plunged 10% month over month to a seasonally adjusted rate of 1.52 million. Single‚Äźfamily authorizations in August were at a rate of 899,000, and multifamily permits were at a 571,000 pace. The number of apartments under construction (890,000 residents in two-plus unit properties) is at the highest level since the first quarter of 1974.

“Many potential ‘move-up’ buyers who would be likely candidates for high-priced new construction homes may also be weighing the benefits of remaining in their current home – where they likely have a mortgage rate less than half of today’s going rate, all factors that are contributing to a decline in housing mobility,” Mangold said.