US home builders ramped up construction in July, beating expectations
Aerial establishing shot of suburban homes being built over farmland in southeast Bend
By Anna Bahney, CNN
Washington, DC (CNN) — US home building increased in July, rising 3.9% from June, as low inventory in the existing home market continued to boost interest in new homes.
Housing starts, a measure of new-home construction, climbed to a seasonally adjusted annual rate of 1.452 million in the month, beating market expectations of 1.448 million, according to data released Wednesday by the Census Bureau.
The number of units started was up 5.9% from July 2022.
Single‐family housing starts, which account for most of the construction, rose 6.7% in July from the revised June figure, at a seasonally adjusted annual rate of 983,000.
Midwest, West see more building
New residential construction is highlighting a housing market where buyers are looking for affordable homes in the face of high home prices, elevated mortgage rates, and not enough homes to buy said George Ratiu, chief economist at Keeping Current Matters, a real estate market insights and content company.
“Buyers embraced new homes in the first half of this year as a welcome alternative to the massive shortage of existing homes,” Ratiu said.
“Homebuilders responded to the rebound in demand by ramping up production in the first five months of 2023 and rolling out incentives,” he said. “The latest readings show activity skewing noticeably toward the single-family space.”
Completed homes declined 11.8% from June and were 5.4% lower than a year ago. The pace of single-family home completion picked up from the prior month, boosted by gains in the Midwest and West.
Building permits, which track the number of new housing units granted permits, were essentially flat in July, eeking out a 0.1% gain to a seasonally adjusted annual rate of 1.442 million. Permits were down 13% from a year ago.
Low inventory continues to boost new residential construction
The lack of resale inventory continues to benefit the new home market, said Kelly Mangold of RCLCO Real Estate Consulting.
“Motivated buyers may find a good deal as prices stagnate and large builders who are able to offer mortgage buydowns are able to offer buyers a much more competitive offer than is available in the resale market,” she said.
The slight increase in starts suggests builders have some optimism, she said, though it remains to be seen what future mortgage rate increases may mean for the market.
“Housing mobility is down as many owners who might typically have sold have decided to stay and upgrade their existing homes instead of purchasing a larger or more well-appointed move-up model,” Mangold said. “In many cases, even repurchasing their same home at today’s mortgage rates would be out of a typical buyer’s price range.”
Mortgage rates are hovering around 7% and interested buyer traffic is slowing down for some builders.
Home builder sentiment had been rising this year, riding the wave of demand caused by lack of inventory in the existing home market, but dropped for the first time this year in August according to a separate report. The National Association of Home Builders/Wells Fargo Housing Market Index, released Tuesday looks at current sales, buyer traffic and the outlook for sales of new construction homes over the next six months.
Several things are combining to pull builder sentiment down, said Alicia Huey, the NAHB Chairman, including higher mortgage rates and high construction costs, a lack of buildable lots and ongoing material shortages.
“But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many home owners elect to stay put because they are locked in at a low mortgage rate,” she said.
Home builder stocks got a boost this week following a Monday filing that revealed Warren Buffett’s Berkshire Hathaway (BRKA) made a big bet on US home builders last quarter. The company disclosed new stakes in Lennar (LEN), D.R. Horton (DHI) and NVR (NVR) in a securities’ filing.
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