By Lucia Mutikani
WASHINGTON (Reuters) -U.S. single-family homebuilding fell in June, but permits for future construction rose to a 12-month high as a severe shortage of previously owned houses for sale supports new construction.
The decline in housing starts reported by the Commerce Department on Wednesday followed a surge in May, which had pushed groundbreaking on single-family housing projects to an 11-month high. Builders’ efforts to ramp up construction are, however, being frustrated by shortages of materials like electrical transformer equipment as well as higher borrowing costs. Housing completions fell last month and the stock of single-family homes under construction was the lowest in two years.
“June’s home construction data seem to be more a story of maintaining momentum than building momentum, but it at least implies that a significant decline in starts shouldn’t be expected for the remainder of summer,” said Daniel Vielhaber, an economist at Nationwide in Columbus, Ohio.
Single-family housing starts, which account for the bulk of homebuilding, dropped 7.0% to a seasonally adjusted annual rate of 935,000 units last month. Data for May was revised up to show starts vaulting to a rate of 1.005 million units, instead of 997,000 units as previously reported.
May’s pace was the highest in 11 months. In June, single-family homebuilding fell in the Northeast, Midwest as well as the densely populated South. It, however, jumped 4.6% in the West.
Housing supply remains well below pre-pandemic levels. Starts for housing projects with five units or more declined 11.6% to a rate of 482,000 units, the lowest since December. Multi-family housing starts, which are volatile, have been boosted by demand for rental accommodation as higher mortgage rates priced out some potential home buyers from the market.
With both single- and multi-family homebuilding declining, overall housing starts dropped 8.0% to a rate of 1.434 million units in June. Economists had forecast starts decreasing to a rate of 1.48 million units.
Nevertheless, the housing market has likely reached a bottom after being pushed into recession by the Federal Reserve’s aggressive monetary policy tightening. A survey on Tuesday showed the National Association of Home Builders/Wells Fargo Housing Market Index increased to a 13-month high in July, with fewer builders reporting offering incentives to attract buyers.
MORTGAGE RATES RISING
But with the average rate on the popular 30-year fixed mortgage approaching 7%, according to data from mortgage finance agency Freddie Mac, the anticipated housing market rebound could be muted.
Residential investment has contracted for eight straight quarters, the longest such streak since the collapse of the housing bubble triggered the 2007-2009 Great Recession.
“Today’s report continues to suggest stabilization in the housing market after experiencing the adverse effects from tighter monetary policy since the Fed started rate hikes,” said Murat Tasci, an economist at JPMorgan in New York. “We expect the drag from residential investment to gradually dissipate with this continued stabilization.”
Permits for future construction of single-family homes increased 2.2% in June to a rate of 922,000 units, the highest since June 2022. Single-family building permits surged in the Midwest and South, but were unchanged in the Northeast and West.
Permits for housing projects with five units or more plunged 13.5% to a rate of 467,000 units, the lowest level since October 2020. The rental vacancy rate rose to a two-year high in the first quarter, likely limiting the scope for more new multi-family home construction.
Overall building permits dropped 3.7% to a rate of 1.440 million units last month.
The number of houses approved for construction that are yet to be started fell 2.1% to 281,000 units. The single-family homebuilding backlog rose 0.7% to 141,00 units, while the completions rate for this segment fell 2.8% to a rate of 986,000 units.
The inventory of single-family housing under construction dropped 0.9% to a rate of 688,000 units, the lowest level since June 2021.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
