The numbers: Construction on new homes fell 8% in June, as U.S. homebuilders sharply slowed down starting on new single-family homes and focusing on finishing existing projects.
Housing starts fell to a 1.43 million annual pace last month from 1.56 million in May, the government said Wednesday. The data measures how many houses would be built over an entire year if construction took place at the same rate in every month as it did in June.
The pace of construction in June slowed from a jump of nearly 16% the previous month. The jump in housing starts in May this year was only eclipsed by a surge in construction in March 2021.
Economists on Wall Street were expecting a sharper drop of 9.2%. All numbers are seasonally adjusted. The last time housing starts fell by this much was in July 2022.
Both single and multi-family construction fell in June, as home builders pulled back on new construction to focus on finishing and selling existing inventory.
But keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market for existing homes.
The drop in construction this summer was led by the Midwest, which saw housing starts drop by 33%.
Building permits, a sign of future construction, fell 3.7% to a 1.44 million rate.
Key details: The construction pace of single-family homes fell by 7% in June, and apartment building fell by 11.6%.
Home builders pulled back the most in the Midwest, where housing starts fell by 33%. That comes after a surge in building in May of 67%.
The only part of the U.S. where housing starts rose in June was in the West, where housing starts rose by 4.6% for single-family homes.
Permits for single-family homes rose by 2.2% in June, while permits for buildings with at least five units or more dropped by 13.5%.
Big picture: At the end of spring, builders revved up construction on single-family homes as the weather warmed up. Housing starts jumped nearly 16% in June, according to the government’s data.
But this summer, they’re not pulling back due to weak demand. They appear to be focusing on finishing those projects. 1.68 million homes were under construction as of June, which is the highest level since February.
Demand for new homes continues to be strong, and builders continue to pull back on sales incentives such as price cuts, the National Association of Home Builders reported on Tuesday.
What are they saying? Single-family housing starts have been strong in May and June, Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.
Given that single-family home-building is still elevated this spring and summer, “this adds to the evidence that housing activity is, at a minimum, bottoming out after a rough second half of 2022,” he added.
“Overall, the cooling in building and permit issuance is a good sign for the Fed that is looking to limit housing market activity in an effort to contain inflation,” Katherine Judge at CIBC Economics, wrote in a note.
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