Falling Activity in the Housing Market

New home construction, measured as housing starts, came in at 1.25 million units in June, a 0.9% decline from revised May figures but still a 6.2% increase from June of last year. Gains in single-family starts (the largest part of the market) partially offset losses in multifamily starts for the month. Multifamily starts are still up for the year by 25% as builders attempt to satisfy the growing demand for rentals.

Single-family monthly gains were broad-based except for the Northeast. The largest housing market, the South, gained 1.1% in June for single-family starts, the most important for the region, but losses in multifamily starts dragged for the month.

The number of new housing permits, an indicator of future construction plans, fell to 1.22 million units, the biggest drop in 39 months. Declines were driven by multifamily permits for buildings with five units or more; those account for almost 30% of all permits; single-family permits were flat for the month. Permits fell 6.6% compared to June of last year.

The index for home builder confidence in the single-family housing market edged higher to 65 in July. Builders are feeling confident about current and expected sales. Demand for housing remains strong. Unfortunately, increasing costs and lack of supply are hindering affordability, which is why foot traffic, the third component in overall sentiment, has remained subdued since late 2018.

Recent housing market concerns expressed by the Federal Reserve Chair, Jerome Powell, echo builders’ frustrations. The increasing costs of land, materials and labor are exacerbating a housing shortage. Home purchase costs are rising, holding back prospective buyers from the market. Last week’s mortgage applications fell 1.1%, with applications to purchase a home declining 4%. Refinancing increased 2%. Many first-time and low-income buyers are still on the sidelines due to rising house prices and the overhang of student debt.

Bottom Line
A pirouette by Powell helped the housing market earlier this season, but those effects are already beginning to play out as evidenced by the subsequent rise in mortgage rates. Look for the housing market to cool after a second quarter spurt.

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