Washington, DC

US homebuilding fell in August, falling 11.3% from July levels, with mortgage rates remaining high amid persistent inflation.

The new home construction rate, a measure of new home construction, fell to a seasonally adjusted annual rate of 1.283 million last month, well below expectations of 1.44 million, according to data released Tuesday by the Census Bureau.

This was the lowest level since June 2020.

The number of units started was 14.8% lower than last year.

Single-family housing starts, which account for most construction, fell 4.3% in August from the revised July figure, at a seasonally adjusted annual rate of 941,000.

After rising in July, new home starts fell in August as mortgage rates rise again to peak in late 2022.

“The combination of high interest rates, rising prices and limited inventory continues to impact the housing market,” said Kelly Mangold of real estate consulting firm RCLCO. “In many cases, even repurchasing the same home at current mortgage rates would be outside the buyer’s usual price range.”

More than 90% of homeowners have a mortgage rate less than 6% and many have rates closer to 2% or 3%. Few people want to buy or sell a new home at rates now higher than 7%. This has led to an unusually low inventory of homes for sale.

While this is good news for the new residential construction market, it was not enough to counter the affordability factors that hampered purchasing activity last month, Mangold said.

“Motivated buyers may find a good deal as prices stagnate, and large builders who are able to offer mortgage buyouts are able to provide buyers with a much more competitive offer than is available in the resale market,” she said, adding that the decline in construction starts shows that Builders remain cautious about what future increases in mortgage rates will mean for the market.

Homebuilder confidence fell in September, according to a separate report from the National Association of Home Builders/Wells Fargo Housing Market Index released Monday.

The monthly index looks at current sales, buyer movement and new construction home sales expectations over the next six months. The September reading was the first time in five months that overall construction sentiment levels fell below the breakeven level of 50.

But looking to the future, builders are still requesting permits for new residential construction.

Building permits, which measure the number of new housing units granted permits, rose in August, rising 6.9% above the revised figure in July to a seasonally adjusted annual rate of 1.443 million, the highest level in 10 months.

Permits were still 2.7% lower than last year.

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