Rising interest rates on mortgages and construction and development loans inhibited production and demand for single-family homes during June.
The U.S. Department of Housing and Urban Development and the Census Bureau reported that housing starts increased 3.0 percent in June at a seasonally adjusted annual rate, to 1.35 million units.
June's 1.35 million starts represent the number of housing units builders will begin constructing if development maintains that pace over the next 12 months. Within that total, single-family housing starts fell 2.2% from the upwardly revised May figure to a seasonally adjusted annual rate of 980,000. However, on a year-to-date basis, single-family housing starts are up 16.1% so far in 2024.
The decline in single-family housing starts is consistent with our latest industry survey, indicating that homebuilders are concerned about the current high interest rate environment. Improving inflation data is expected to lead the Federal Reserve to begin lowering interest rates later this year. An improving interest rate environment will help homebuilders and developers as well as buyers who are struggling with tough lending terms and high interest rates. And with housing inventory (new and existing) relatively low at 4.4 months' worth, homebuilders are poised to ramp up production in the coming months. In fact, NAHB survey data on homebuilders' future sales expectations increased in July.
The volatile multifamily sector, which includes apartments and condominiums, grew 19.6% in June to an annualized pace of 373,000 units. But the overall trend in apartment construction is declining. The pace of starts for multifamily buildings with five or more units is down 23.4% from a year ago. And year-to-date, starts for multifamily buildings with five or more units are down 36.3%.
Looking at construction starts by region and year-to-date, combined single-family and multifamily housing starts were down 9.9% in the Northeast, down 3.4% in the Midwest, down 3.5% in the South, and up 0.7% in the West.
Overall permits increased 3.4% in June, to an annualized rate of 1.45 million. Single-family permits decreased 2.3%, to 934,000. Multifamily permits increased 15.6%, to an annualized rate of 512,000.
Looking at regional data for the year to date, permits are down 0.8% in the Northeast, up 3.0% in the Midwest, down 0.7% in the South, and down 3.8% in the West.
The total number of single-family homes and condominiums under construction in June was 1.56 million, the lowest since January 2022.
Single-family homes under construction fell 1.3% to 668,000, down 2.2% from a year ago. Multifamily homes under construction continued to decline, down 1.6% to 895,000, down 11.4% from a year ago. The number of multifamily homes under construction hit its lowest since August 2022. This number is expected to continue to decline. On a three-month moving average, there are currently 1.7 completed apartment units for every one apartment unit under construction.
Multifamily completions in June reached a seasonally adjusted annual rate of 673,000 units, the fastest pace of apartment completions since May 1986. This additional supply will help ease some of the inflation in home prices and give the Fed confidence to start cutting interest rates later this year.
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