US home building sank in August, dropping 11.3% from July levels, as mortgage rates stayed elevated amid lingering inflation.
Housing starts, a measure of new-home construction, dropped to a seasonally adjusted annual rate of 1.283 million last month, well below expectations of 1.44 million, according to data released Tuesday by the Census Bureau.
It was the lowest level since June 2020.
The number of units started was 14.8% lower than a year ago.
Single‐family housing starts, which account for most of the construction, dropped 4.3% in August from the revised July figure, at a seasonally adjusted annual rate of 941,000.
After rising in July, new home starts dropped in August as mortgage rates climbed back to their late 2022 peak.
“The combination of high interest rates, high pricing, and limited inventory has continued to plague the housing market,” said Kelly Mangold of RCLCO Real Estate Consulting. “In many cases, even repurchasing their same home at today’s mortgage rates would be out of a typical buyer’s price range.”
More than 90% of homeowners have a mortgage rate under 6% and many have rates closer to 2% or 3%. Few want to sell and buy a new home with rates now over 7%. This has led to extraordinarily low inventory of existing homes for sale.
While that has been good news for the new construction residential market, it was not enough to counteract the affordability factors that have put a damper on purchasing activity last month, said Mangold.
“Motivated buyers may find a good deal as prices stagnate and large builders who are able to offer mortgage buydowns are able to offer buyers a much more competitive offer than is available in the resale market,” she said, adding that the decrease in starts shows that builders remain wary about what future mortgage rate increases will mean for the market.
Home builder confidence was lower in September, according to a separate report from the National Association of Home Builders / Wells Fargo Housing Market Index released Monday.
The monthly index looks at current sales, buyer traffic and the outlook for sales of new-construction homes over the next six months. September’s reading was the first time in five months that overall builder sentiment levels dropped below the break-even measure of 50.
But, looking ahead, builders are still requesting permits for new residential construction.
Building permits, which track the number of new housing units granted permits, were up in August, climbing 6.9% above July’s revised number to a seasonally adjusted annual rate of 1.443 million, the highest level in 10 months.
Permits were still 2.7% lower than a year ago.