Residential construction was mixed in August, as housing starts rose 12.2% while permits fell 10%, the Census Bureau reported on Tuesday.
Starts were at an annual rate of 1.575 million while permits for future homes came in at an annual rate of 1.52 million.
“Housing starts increased in August, with a majority of the gain coming from multifamily starts which increased nearly 30% over their July numbers,” said Kelly Mangold of RCLCO Real Estate Consulting.
“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,” she added.
Regionally, the biggest drop in permits came in the South, where markets have been among the hottest. Multi-unit starts also fell more than those for single family homes.
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“With mortgage rates rising above 6%, consumers are feeling the pinch of declining affordability, which may further price out potential buyers, particularly the rate-sensitive first-time buyers,” Odeta Kushi, deputy chief economist at title insurer First American, said ahead of the report. “In response, builders are likely to break ground on fewer single family homes.”
“A slowdown in new construction is concerning because the housing market remains underbuilt relative to the demand,” Kushi added. “Demographic tailwinds from millennials continuing to age into their prime home-buying years and a lack of existing-home inventory mean that new home construction is essential in meeting shelter demand.”
The decline in construction is not likely to change the upward trajectory of interest rates, with the Federal Reserve on Wednesday expected to raise interest rates by 75 basis points. The Fed has said it will do all it can to stamp out inflation, even at the expense of the labor market and the broader economy.
“As the Fed continues to push short-term interest rates higher to slow the economy, recession risks will remain a concern for investors,” Jeffrey Roach, chief economist for LPL Financial, said on Monday.
“While we don’t think a recession is likely this year, we do think it’s roughly a 50/50 proposition in 2023,” Roach added. “And as long as there are concerns about a slowing economy, we could see either stable or lower long-end (interest) rates.”