Housing starts, an indicator of new home construction, rose more than expected in August. A sharp decline in permits, however, indicates that the housing market slowdown likely isn’t over.
Construction on new homes was started at a seasonally-adjusted annual rate of about 1.58 million in August, the Census Bureau and Department of Housing and Urban Development said Tuesday. That’s an increase from July’s revised rate of about 1.4 million and faster than the 1.45 million called for by
Permits, a measure of future construction, fell more than expected. The seasonally-adjusted annual rate of about 1.52 million was lower than July’s revised rate of about 1.69 million and lower than consensus estimates that called for a rate of about 1.63 million.
August’s increase in starts was “a surprising bounce back,” Lawrence Yun, the National Association of Realtors’ chief economist, said in a Tuesday statement. “The latest month’s increase is implying that builders still see profit opportunities even as they concede on prices,” he said, adding that finished homes are selling quickly while those that are unfinished spend more time on the market.
Home builders, however, aren’t overly optimistic. Builder confidence declined for the ninth month in a row in September, the National Association of Home Builders said Monday. The survey result, which is meant to correlate with single-family housing starts over the next six months, was at its lowest level since spring 2020, the trade group said. More than half of the survey’s respondents said they were using incentives to boost sales, the trade group said.
“Today’s housing starts report is more evidence that the housing recession is deepening for the single-family market,” Jing Fu, the trade group’s director of forecasting and analysis, said in a statement. “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.”
Total housing starts advanced 12.2% from the month prior—but the broader number is only part of the picture. Single-unit starts, which historically comprise the bulk of housing starts, increased by a slimmer 3.4% to a rate of 935,000, and were 15% lower than the same month last year.
The housing market slowed this summer as higher mortgage rates added to the cost of financing a home purchase. The average mortgage rate last week was higher than 6% for the first time since 2008, Freddie Mac said in its most recent Primary Mortgage Market Survey. Mortgage rates have doubled compared with the prior year as the Federal Reserve has moved to control inflation.
Builders now appear to be working through their pipeline of homes waiting to be built. The seasonally-adjusted count of homes authorized but not yet started at the end of August was 290,000—down from July’s historic high of 298,000 but still well above average.
Builder stocks were trading lower shortly after the market opened on Tuesday. The
SPDR S&P Homebuilders
exchange-traded fund (ticker: XHB) that tracks the industry was down 2% on Tuesday. The S&P 500, for comparison, was down 1.2%.
The construction report likely isn’t the only factor weighing on investors’ minds. The 10-year Treasury yield, with which mortgage rates often move in tandem, was rising Tuesday morning in anticipation of Wednesday’s Federal Reserve meeting.
Higher mortgage rates add to the cost of financing a home purchase—and there’s little indication that mortgage rates have moved down from last week’s highs. On the contrary, daily rates collected by Mortgage News Daily show that the 30-year fixed mortgage rate on Monday was 6.42%.
Earnings reports from two public home builders are also anticipated this week. Both
(KBH) will report earnings on Wednesday after the market closes.
Write to Shaina Mishkin at [email protected]