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New home construction and developer confidence plummeted

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According to the US Census Bureau, housing starts in June, the rate of new housing starts during the month, fell 2% from the previous month and 6.3% from last year.

Meanwhile, a separate study released on Monday showed home builder confidence fell to its lowest level since spring 2020 this month. prospects for sales over the next six months.

“Production bottlenecks, rising house building costs, and high inflation are causing many builders to halt construction because the cost of land, construction, and financing exceeds the market value of a home,” said Jerry Conter, NAHB chairman and Savannah-based builder and developer. , Georgia.

The construction slowdown is as rising mortgage rates and home prices continue to scare off potential buyers, said Joel Berner, senior economic research analyst at Realtor.com.

“With mortgage rates at their highest level since 2008, many potential buyers are being squeezed out of the housing market, and builders are responding to this low demand by launching fewer construction projects,” Berner said.

The average rate on a 30-year fixed-rate loan has risen by more than two percentage points since January and is now 5.5%.

Fewer new single-family homes under construction

The fall in construction starts was most concentrated among single-family homes, which were down 15.7% year-over-year.

The number of building permits for individual houses and some apartment buildings also fell in June compared to May, seasonally adjusted. All new building permits fell 0.6% from May, while single-family building permits fell more significantly, by 8%. Compared to last year, all permits were actually up 1.4%, but single-family home permits were down 11.4%.

The construction of apartment buildings continues mainly due to high rents.

“With nationwide rental rates up 14% or more year-on-year in every month of 2022, and active inventory for sale 28% higher than last year, it’s no surprise that builders are now more interested in multi-family homes. family rental building,” Berner said.

This slowdown in construction comes even after lumber prices bottomed out in June, Berner said. But the relief at these prices may not last long.

“With lumber prices creeping back up in July and demand from homebuyers being dampened by rising home financing costs, it is unlikely that much progress will be made in closing the housing supply gap anytime soon,” Berner said. “At the same time, potential first-time homebuyers who pause their searches may find more rental options if multi-family projects continue to get more attention from builders.”

Housing affordability issues remain

While 13% of developers in the NAHB/Wells Fargo survey said they cut home prices last month to support sales or limit cancellations, affordability concerns for buyers remain.

How many houses can I afford?

“A significant portion of the home buying population is being pushed out of the market on price,” said Robert Dietz, chief economist at the NAHB. “Politicians need to address supply issues to help builders produce more affordable housing.”

As builders halt or slow down new construction, this will further impact the housing market. The housing stock was already extremely limited, driving up house prices. A slowdown in the supply of new homes will make the situation even worse.

New homes on the market sell quickly in 2.4 months. According to Lawrence Yun, chief economist for the National Association of Realtors, the average is 3 to 4 months.

“Builders are facing disruptions in supply chains, and many homes built a few months ago are not yet completed,” Yun said. “Homebuilders are waiting to see how these houses will sell before starting new construction.

But general availability restrictions could push more buyers to rent, he said.

“Problems with housing supply will continue in the coming months and next year,” Yun said.

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