Gauges of new-home construction due Tuesday are expected to fall, reflecting the impact of higher mortgage rates and home prices on buyers’ bottom lines.
Each month, the Census Bureau and Department of Housing and Urban Development release two measures of home construction activity, commonly referred to as housing starts and permits. A housing start is logged when construction begins on a new home, while permits indicate the number of new units authorized in places that require a building permit.
Housing starts are expected to fall for the third month in a row to their lowest level since April 2021. Starts in July are expected to drop to a seasonally adjusted annual rate of 1.54 million from June’s preliminary rate of 1.56 million, according to FactSet estimates.
Permits are also expected to dip in July, falling to a rate of 1.65 million, the lowest since September 2021 and down from about 1.7 million in June, according to FactSet.
The gloomy outlook comes as the moods of home builders sour. Sentiment among the group, as measured by the National Association of Home Builders, fell in August below its break-even level to the lowest point since May 2020.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs has brought on a housing recession,” wrote Robert Dietz, chief economist of the National Association of Home Builders, predicting that single-family starts would decline this year for the first time since 2011.
A majority of builders surveyed by the association attributed falling buyer demand to higher interest rates, Dietz wrote. Of the builders surveyed, 19% said they reduced prices over the past month to limit cancellations or increase sales, he added.
Weekly mortgage rates measured by Freddie Mac rose as high as 5.81% in June as the Fed moved to combat inflation. Rates have fallen since—the average rate on a fixed 30-year mortgage last week was 5.22% this past week—but have remained more than 2 percentage points above the same week a year ago.
While unlikely to return to historic lows seen earlier in the pandemic, there are signs that rates could stabilize, Dietz wrote. “As signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” he said.
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