Home construction in the US, at its lowest level in 18 months

by time news

US homebuilding fell in July to its lowest level in nearly a year and a half, weighed down by rising mortgage rates and building material prices, suggesting that the housing market could contract further in the third quarter.

Tuesday’s Commerce Department report also showed that permits for the construction of future homes fell to their lowest level in 10 months, a decline that was concentrated in single-family homes, reports the Reuters agency.

The housing market has been the most affected by the aggressive increases in interest rates by the Federal Reservedesigned to cool down the economy to control inflation.

Housing starts plummeted 9.6% at a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. June data was revised slightly higher, to a rate of 1.599 million units, from 1.559 million units previously reported.

figures

Economists polled by Reuters had forecast a decline in starts to a rate of 1.54 billion units.

Single-family homes started, accounting for the majority of housing construction, fell 10.1% at a rate of 916,000 units, the lowest since June 2020.

Housing project starts of five units or more decreased by 10.0% at a rate of 514,000 units. Multi-family housing construction continues to be supported by strong demand for rental apartments as rising borrowing costs put home ownership out of reach for many Americans.

Permits for the construction of future homes fell 1.3% to a rate of 1.674 million units. Single-family home building permits fell 4.3% to a rate of 928,000 units. Permits for housing projects with five or more units increased 2.5%, to a rate of 693,000 units.

The Federal Reserve, which is struggling to bring inflation back to its 2% target, has raised its policy rate by 225 basis points since March. Linterest rates on mortgages, that move in parallel to US Treasury bond yields, have shot up even more.

Confidence

The 30-year fixed-rate mortgage is around an average of 5.22%, compared to 3.22% at the beginning of the year, according to data from the mortgage financing agency Freddie Mac.

Residential fixed investment fell at its steepest pace in two years in the second quarter and more trouble lies ahead.

The National Association of Home Builders/Wells Fargo Housing Market Confidence Index fell for the eighth consecutive month in August, below the 50-point breakeven level for the first time since May 2020. Rising costs construction and mortgage interest rates were the main culprits.

The number of homes approved for construction that have not yet started grew 5.0% to 296,000 units. The single-family home portfolio increased 2.1% to 146,000 units. The order book should prevent housing construction from collapsing.

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