Housing construction saw an uptick in June, yet it fell short of the significant surge economists had anticipated.
The Census Bureau reported that housing starts reached an annual rate of 1.35 million in June, marking a 3% increase from the previous month. Similarly, building permits rose to an annual rate of 1.45 million. Both figures were close to economists’ predictions.
Despite the increase, economists Charlie Dougherty and Jackie Benson from Wells Fargo noted that the headline numbers mask a less vibrant picture for homebuilders.
Multifamily Housing Leads the Increase
The growth in housing construction was primarily driven by multifamily housing projects, such as apartments and condos. Conversely, permits and housing starts for single-family homes declined in June, as builders faced challenges from slower new home sales due to high interest rates.
“Overall, the restrictive monetary policy appears to be creating significant headwinds for home builders,” wrote the Wells Fargo economists. “Financing operations has become costlier, and demand is waning due to elevated mortgage rates, increased supply in the resale market, and cooling labor market conditions.”
The housing market continues to grapple with affordability issues stemming from high mortgage rates and a limited inventory of existing homes. Economists suggest that increasing the supply of new homes could help ease this gridlock.
Builders Hampered by High Interest Rates
The sentiment among homebuilders remains cautious: high interest rates are making project financing more expensive and deterring potential buyers. However, builders are somewhat optimistic about the future, likely hoping for prospective Federal Reserve interest rate cuts to reduce some of the financial pressure.
Yet, this optimism may not entirely quell builders’ concerns. Robert Frick, a corporate economist at Navy Federal Credit Union, pointed out that even with potential rate cuts, builders face an inventory backlog and recognize that it will take more than just one or two cuts to significantly stimulate buyer activity.
“Even with the prospect of lower mortgage rates if the Fed cuts rates as expected, builders have a backup of houses in inventory and know it will take more than one or two cuts to motivate buyers off the sidelines,” Frick explained.
