The national housing market in the United States showed a mixed picture for project starts in August. Overall, however, trends appear to be stabilising as developers plan their construction projects more carefully, while also advancing previously approved schemes. Total US housing starts decreased by 2.6 per cent in August compared to the previous month, reaching a seasonally adjusted annual rate of 1.3 million units. This is according to data from the financial services company First American Financial Corporation.
In contrast, single-family housing starts rose by 7.6 per cent in August to 918,000 units. However, multi-family housing starts – defined by First American as projects with five or more units – fell by 22.5 per cent month-on-month to 344,000 units. The data indicates that single-family home builders are managing their construction projects “cautiously”, while multi-family home builders are taking a pause given lower demand and slower absorption. Furthermore, multi-family developers and their buyers must now contend with a rise in 30-year mortgage rates to over 7 per cent.
Cautious Builder Stance Amid Persistently High Inventory
Mark Fleming, Chief Economist at First American, stated in a release that single-family home construction showed “some signs of life” in August, but builders are not yet “hitting the gas”. The inventory of new homes remains high, affordability continues to deter buyers, and incentives are driving much of the sales activity. Fleming emphasises that builders will continue to manage their construction pipelines cautiously until demand picks up more convincingly.
Total housing starts in August were revised from 1.2 million to 1.3 million, and single-family housing starts from 808,000 to 853,000, according to First American Financial data. Construction activity in July was also “more robust” than initially assumed. The six-month trend for housing starts has stabilised, according to Fleming, while permits and completions are declining.
Mixed Outlook and Continued Restraint
Fleming added that a single month's data point “does not change the overall picture”. The months' supply of new homes remains high, and growth in building permits has generally slowed as inventories have accumulated. Given the many new homes already available relative to the current pace of sales, builders have little reason to significantly increase production until inventories are cleared or demand improves.
Builder sentiment, measured by the National Association of Home Builders on a scale of 0 to 100, confirms this picture. Builder confidence rose by 3 points in September to 32 and has been below 40 for almost two years. Potential buyer traffic on this scale only reaches 23, according to First American.
Fleming summarised that August left a mixed impression: single-family permits and completions trended downwards, while the trend in housing starts stabilised. Given the persistently high inventory of new homes and buyers' price sensitivity, builders remain cautious until they observe a more convincing increase in demand. For housing construction to regain momentum, builders need an improvement in affordability and relief from the costs that continue to burden new construction.
