Wed. Sep 20th, 2023
    New U.S. Home Construction Hits Lowest Level Since 2020, Reflecting Challenges for Housing Market

    New data released by the Commerce Department has shown that new home construction in the United States dropped in August to its lowest level since 2020. The housing market continues to face ongoing challenges as housing starts declined by 11.3%, reaching an annual rate of 1.28 million units. This figure is significantly below the forecasted pace of 1.44 million units by Refinitiv economists.

    Although building permits, which measure future construction, experienced a 6.9% increase in August to an annualized rate of 1.54 million units, they are down approximately 2.7% compared to the same period last year. One economist, Daniel Vielhaber, notes that the decline in home construction may be partially attributed to the multifamily sector, which tends to be volatile.

    The decrease in new home construction comes in light of the National Association of Home Builders/Wells Fargo Housing Market Index reporting a significant decline in sentiment among builders. The index fell five points to 45, the lowest reading since April 2023. This decline followed a six-point drop in August. Any reading below 50 is considered negative.

    The limited inventory of resale homes had been driving demand for new construction, and builders were experiencing increased confidence. However, the surge in mortgage rates above 7% in September led to a decrease in demand among potential homebuyers. Robert Dietz, the chief economist at the National Association of Home Builders, attributes this to buyers opting to wait for long-term rates to decrease.

    Mortgage rates are expected to remain high, as the Federal Reserve has indicated that it might maintain peak interest rates for a longer duration than previously anticipated. Currently, the 30-year fixed mortgage rate is around 7.18%, significantly higher than the 6.02% rate recorded a year ago and the pre-pandemic average of 3.9%. In fact, it is close to the highest level in the past two decades.

    Sources: Commerce Department, Refinitiv, Nationwide, National Association of Home Builders, Wells Fargo, Freddie Mac