WASHINGTON – Elevated interest rates for home mortgages and construction and development loans kept single-family production and demand in check during June.
Overall housing starts increased 3% in June to a seasonally adjusted annual rate of 1.35 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
The June reading of 1.35 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 2.2% from an upwardly revised May figure to a 980,000 seasonally adjusted annual rate. However, on a year-to-date basis, single-family starts are up 16.1%. The volatile multifamily sector, which includes apartment buildings and condos, increased 19.6% to an annualized 373,000 pace.
Lawrence Yun, chief economist for the National Association of Realtors®, said the stabilization of rental prices further indicates the recent White House proposal of rent controls are not needed.
“New apartment units completed reached a 50-year high in June. That is truly a wow,” he said. “The rents have stopped rising in many cities due to the oversupply of rental units. This indicates that rent controls are not needed, but just more supply to address housing affordability. But the concern is that new multifamily housing starts year-to-date are around 10-year lows. The high financing costs and low current rent growth have reduced the incentive to build. The current supply is due to active construction starts of the past. It takes around two years to finish apartment construction. Perhaps, there will be a rental housing shortage in a couple of years.”
He added, “Single-family housing completion was above 1 million, which is decent, though more would help. But single-family housing starts were below one million in the latest month. The Fed policy of high interest rates, counterintuitively, could raise inflation in future years. Lower interest rates soon will lead to more housing supply and lower future housing inflation.”
On a regional and year-to-date basis, combined single-family and multifamily starts are 9.9% lower in the Northeast, 3.4% lower in the Midwest, 3.5% lower in the South and 0.7% higher in the West.
Overall permits increased 3.4% to a 1.45 million unit annualized rate in June. Single-family permits decreased 2.3% to a 934,000 unit rate. Multifamily permits increased 15.6% to an annualized 512,000 pace.
“Lower single-family starts are in line with our latest builder surveys, which show that while builders are concerned about the current high interest rate environment, they believe that mortgage rates will moderate in the coming months and lead to higher construction in the latter part of 2024,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and custom home builder from Wichita, Kan.
Looking at regional data on a year-to-date basis, permits are 0.8% lower in the Northeast, 3.0% higher in the Midwest, 0.7% lower in the South and 3.8% lower in the West.
The total number of single-family homes and apartments under construction was 1.56 million in June. This is the lowest total since January 2022.
Single-family homes under construction fell back 1.3%, to a count of 668,000 – down 2.2% from a year ago. The number of multifamily units under construction continues to fall, declining 1.6% to an 895,000 count – down 11.4% from a year ago. The number of multifamily units under construction is now the lowest since August 2022.
Multifamily completions reached a 673,000 seasonally adjusted annual rate in June. This is the fastest pace for apartment completions since May of 1986. This additional supply will provide some added relief for shelter inflation and provide confidence for the Fed to begin cutting interest rates this year.
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