The number of housing starts ticked up in July despite rising mortgage rates, adding to the mixed signals regarding the health of the market.
Housing starts measure the change in the number of new residential buildings that began construction. Starts rose 3.9% from June to this past month, according to a Wednesday report from the Census Bureau. They are at a seasonally adjusted annual rate of 1.452 million. From July 2022, they rose 5.9%.
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For permits to build, which are seen as a proxy for future construction, the seasonally adjusted annual rate of new permits last month was 13% below the rate in July last year.
“U.S. housing starts rose in line with expectations in July as a solid rise in single-family starts more than offset a small decline in multifamily starts,” Oxford Economics said in a note. “We expect a decline in starts later this year to be concentrated in the multifamily sector where supply is more plentiful and where tighter lending standards are expected to take a greater toll.”
Mortgage rates have been pushed to multimonth highs recently as the Federal Reserve opted to hike interest rates again in July. The average rate on a 30-year fixed-rate mortgage is now punching above 7.25%, according to Mortgage News Daily. That is the highest they have been since November.
The housing market was smoldering hot through much of the pandemic because the Fed cut interest rates to near-zero levels, resulting in ultra-low mortgage rates for homebuyers. Those historic rates spurred a massive wave of demand, and as a result, prices rose, and construction took off.
Last year, though, the housing picture flipped, and demand quickly fell as the Fed hiked rates and mortgage rates soared above 7% — far higher than the sub-3% levels during the pandemic’s easy money period. Then, earlier this year, amid what many economists deemed a “housing recession,” prices began falling.
But there have been some more recent indications that the housing market has a bit of wind in its sails despite the high mortgage rates.
In particular, buyers have been pushed into the market for new homes because existing home inventory is so low. The buyers who locked in those sub-3% mortgage rates are holding on to their homes and avoiding putting them on the market because they got such a good deal — meaning that prospective buyers must turn to new homes.
Sales of existing homes declined in June, down 18.9% from the year before. Sales fell by 3.3% in June to a seasonally adjusted annual rate of 4.16 million, according to a report by the National Association of Realtors. Total housing inventory is down 13.6% from a year ago.
Although new home sales data have been mixed from month to month, with some reports showing declines and others showing increases in sales, given the pressure for more inventory, builders have kept constructing. That is good for the broader economic health of the country because it translates to more jobs and spending that ripple through the economy.
But because of the higher mortgage rates, particularly over the past couple of months, the outlook for the construction industry has soured some.
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After steadily rising for seven consecutive months, builder confidence fell in August, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
“But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many homeowners elect to stay put because they are locked in at a low mortgage rate,” said NAHB Chairwoman Alicia Huey, a custom home builder and developer from Alabama.
