Even as homebuilder sentiment continued to slide in September, reaching its lowest level since May 2014, housing starts were on the rise in August, increasing 12.2% from July, according to a report released Tuesday by U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
In August, housing starts rose to a seasonally adjusted annual rate of 1.575 million. Despite the month-over-month increase in the rate, it remains 0.1% lower than the rate recorded in August 2021.
The increased pace in homebuilding is mostly attributable to strong growth in the multi-family sector, which posted a 28.6% monthly increase and a 31.0% annual increase to a rate of 612,000. In the single-family sector, while the number of housing starts posted a month-over-month increase of 3.4% to a rate of 935,000, this rate remained 14.6% lower than that recorded a year prior.
“As demand for rental homes continues to increase due to waning affordability in the for-sale market, builders are shifting with the winds and meeting consumers where they are,” Nicole Bachaud, a Zillow economist, said in a statement. “Multifamily starts increased to the highest level seen in years at the expense of single family starts as builders focus on the rental market.”
While the increase in housing start volume is good news for builders, the rate of housing completions has slowed since July, dropping 5.4% to a rate of 1.342 million. Despite this monthly decrease, on an annual basis, housing completions were up 3.1% compared to a year ago.
Again, the multifamily sector was the main contributor to these changes, dropping 20.7% from July and 6.7% from a year ago to a rate of 318,000. The single-family sector, on the other hand, rose 0.4% month over month and 6.5% year over year to a rate of 1.017 million.
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Experts also attributed these changes to an increase in demand for rentals and multi-family complexes.
“Apartment demand has been strong, with rents rising at a historically high pace. Those consumers unable to qualify for a mortgage at higher interest rates are renewing their rental leases,” Lawrence Yun, the National Association of Realtor’s chief economist, said in a statement. “Job creation is also boosting the rental demand. There was a housing shortage of around 5 million homes before the onset of the pandemic. That shortage is not going away soon. The near-term single-family outlook is complicated due to high mortgage rates.”
Looking ahead, while experts acknowledge that there is an ongoing housing shortage driving a steady demand for shelter, they are not overly optimistic as the demand for building permits has dropped.
In August, the overall builder permit rate was 1.517 million, down 10.0% from July and 14.4% year over year. In addition, both the single-fmaily and multi-family sectors recorded monthly and yearly decreases, with the single-family sector falling 15.3% year over year to 899,000 and the multi-family sector dropping 14.5% from a year ago to a rate of 541,000.
“The decline in permits shows that builders are responding to the decline in affordability and cooling demand in the purchase market by building fewer single-family homes,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “A slowdown in new construction is concerning in the long-run because there remains a structural and long-term national shortage in the housing market. Millennials aging into their prime home-buying years and a lack of existing-home inventory, as rate-locked in homeowners see little incentive to list their homes for sale, mean that new-home construction is essential in meeting future shelter demand.”
Considering the drop in permits, as well as ongoing struggles with material costs and availability in some markets and the recent rise in mortgage rates, Kushi feels that, despite the positive housing start numbers, it is no surprise the builder sentiment has continued to decline.
“With mortgage rates rising above 6%, consumers are feeling the pinch of declining affordability, which may further price out home buyers, particularly more rate-sensitive first-time buyers,” Kushi said.
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