Rising Mortgage Rates Lower Housing StartsSeptember 21st, 2023 by Editor
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly issued new residential construction statistics for August 2023 and the numbers point to a drop in both building permits and housing starts compared to this time last year. The numbers were down 2.7% and 14.8% respectively. Building permits, the report noted, had improved—just shy of 7%–compared to July 2023, though housing starts were down (11.3%) from July.
The National Association of Homebuilders (NAHB) points to higher mortgage rates (averaging more than 7%) for the downturn in single-family production in August, though the situation is compounded by continued supply challenges, elevated construction costs, a lack of skilled labor and a shortage of buildable lots.
“High mortgage rates above 7% combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home,” said Alicia Huey, chairperson of the NAHB and a custom home builder and developer from Birmingham, Ala. “With high mortgage rates sending buyers to the sidelines, and a nationwide shortage of 1.5 million units, we need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve.”
The number of single-family units under construction is down 16.3% compared to a year ago at 676,000. Meanwhile, the number of apartments under construction increased to 1.01 million. On the other hand, housing completions were up 5.3% from last month and 3.8% since last year.
“Despite higher demand for new construction stemming from a lack of resale inventory, home builders are feeling pessimistic about the housing market because of elevated mortgage rates hovering above 7%,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “Unfortunately, we expect mortgage rates to remain at higher levels as the Federal Reserve is likely to increase rates one more time later this quarter.”