U.S. homebuilders are pulling back just when America remains in desperate need of new, affordable homes to lower the rising cost of housing, as the latest data shows that new construction projects fell for the fourth straight month in July. Single-family housing starts, which account for the biggest share of homebuilding in the nation, plunged 9.9 percent last month to a seasonally adjusted annual rate of 808,000 units, according to the Census Bureau’s latest report. That was the lowest rate in more than three and a half years, since November 2022.
Total new home starts, which includes multifamily homes such as apartments, fell 12.4 percent to 1.239 million in the same month. These declines reflect the struggles faced by both homebuyers and homebuilders as they navigate stubbornly high borrowing costs, rising home prices, and growing economic anxiety over the impact of the ongoing Iran war. This year was supposed to bring improvement in affordability for homebuyers, with experts predicting that mortgage rates would have dropped below 6 percent by the end of the year.
The average 30-year fixed-rate mortgage had slipped to 5.98 percent on February 25, giving some relief to buyers, but started climbing again after the U.S. and Israel launched joint strikes on Iran on February 28. As of the week ending August 13, the average 30-year fixed-rate mortgage had reached 6.67 percent, after starting July at an average of 6.43 percent, according to Freddie Mac. While not immediately relevant for homebuilders, rising mortgage rates have kept buyers on the sidelines and discouraged demand, leaving developers to face mounting unsold inventory - especially as home prices are still rising at the national level.
The median sale price for all housing types in the U.S. last month was $434,100, according to the National Association of Realtors (NAR), up 2 percent from a year earlier. Contract signings for existing homes, which marks the final purchase agreement between a buyer and a seller, fell in July, NAR reported, down 2.3 percent from June to the lowest level since January. And existing-home sales fell by 1.7 percent month-over-month in July, while increasing by a modest 0.7 percent year-over-year.
Homebuilders are facing something of a paradox in the current market: the nation has a severe housing shortage, especially when it comes to starter homes, but at the same time there is a huge stock of unsold properties on the market. It all started in 2008, when the financial crisis and the Great Recession devastated the homebuilding sector, putting many builders out of business, forcing many workers to leave the industry, and triggering a tightening of lending for new projects. As a result, housing production collapsed, and the country severely underbuilt compared to demand.
That was the situation when historically low borrowing costs sparked a homebuying frenzy during the pandemic. Faced with limited inventory, eager buyers fought in bidding wars that brought home prices through the roof. Even as housing production has picked up since the end of the pandemic, the housing shortage in the country is still estimated to be in the millions.
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