AgentAgents/BrokersHousing MarketReal Estate

Single-family housing starts plummet, and it’s going to get worse

For the first time since June 2020, both single-family starts and permits fell below a 1 million annual pace

Housing starts fell 2.0% month over month in June to the lowest rate since April 2020, reflecting the increased pessimism among homebuilders.

Housing starts dropped to a seasonally adjusted annual rate of 1.559 million in June, according to a report released Tuesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

The rate is 6.3% lower than the rate recorded in June 2021, and coincided with a decline in homebuilder sentiment.

Single-family housing starts dropped 8.1% month over month to a seasonally adjusted annual rate of 982,000, the lowest rate of housing starts since the throws of the pandemic in April 2020.

“Homebuilder confidence plunged in July for the seventh month in a row, driven by declines in all three components of the index: current single-family home sales, future sales expectations, and traffic of prospective buyers,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “As homebuilder sentiment falls, so does homebuilding.”

By contrast, the multifamily sector recoded a 15.0% month over month increase to a seasonally adjusted annual rate of 568,000.

“While the multifamily market remains strong on solid rental housing demand, the softening of single-family construction data should send a strong signal to the Federal Reserve that tighter financial conditions are producing a housing downturn,” Robert Dietz, the chief economist for the National Association of Home Builders.

Building permits for single family homes also took a tumble in June, dropping 8.0% from a month prior to a rate of 967,000. This is the first time since June 2020, both single-family starts and permits fell below a 1 million annual pace.  

Experts attribute the drop in both housing starts and permits to increased interest rates, building material supply chain bottlenecks and elevated construction costs.

“The new-home market is particularly sensitive to rising mortgage rates and builders want to ensure that if they build it, someone will buy it,” Kushi said. “Builders are likely to respond to the decline in affordability and cooling demand by building fewer homes.”

In addition, industry experts believe the slow in housing starts could be an indicator of a greater market shift in the housing industry.

“Homebuilding is a leading economic and housing indicator, and the decline in housing starts suggests housing is slowing,” Kushi said in a statement. “Inflation hurts consumer confidence and purchasing power, while higher mortgage rates alongside high home prices dampen affordability. The result? A reduction in home buyer traffic and sales.”