Between Housing Starts And Mortgage Rates, The Consumers All Across America Are Not Doing Well
Housing starts experienced a significant decline of 5.5% in the latest report, with an annualized rate falling to 1.28 million. This figure was below most estimates from economists, suggesting a noticeable slowdown in the construction sector. Building permits, which serve as an indicator for future construction activity, also fell by 3.8% to a 1.39 million annual rate, marking the lowest level since June 2020. This decline was evident across both multifamily and single-family units, with authorized permits for single-family homes dropping for the fourth consecutive month to the slowest pace in a year.
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New home construction plunges to slowest pace since June 2020https://t.co/eziVdNuHiW via @markets pic.twitter.com/qGi1RgHM91
— Mo Hossain (@MoHossain) June 20, 2024
The reduction in homebuilding indicates that residential construction, which had shown signs of stabilizing earlier in the year, may now detract from economic growth. Prior to this report, the Federal Reserve Bank of Atlanta’s GDPNow forecast had suggested that the housing category would barely contribute to the gross domestic product in the current quarter. This downturn in construction activity underscores the impact of restrictive monetary policies, as noted by Sal Guatieri, senior economist at BMO Capital Markets. He highlighted that despite support from a growing population and workforce, US home builders are unlikely to see an increase in activity until borrowing costs decrease.
Recent data showing signs of cooling inflation and reduced consumer spending could provide the Federal Reserve with more confidence to begin cutting interest rates, which in turn would help lower mortgage rates. Despite this, the US continues to face a substantial housing shortage, keeping prices high and preventing many Americans from achieving homeownership.
Major homebuilders like Lennar Corp. and KB Home have been attempting to mitigate the impact of high interest rates by offering generous sales incentives, which has helped maintain demand. These companies have managed to maintain healthy profit margins and anticipate further improvements when a lower-rate environment allows for reduced concessions.
May saw new home construction across the US hit its slowest pace since 2020, with high interest rates and borrowing costs continuing to weigh down on the housing industry.https://t.co/hSIZmHCc9Y
— Mortgage Professional America Magazine (@MPAMagazineUS) June 20, 2024
The construction decline was observed in three regions, with the Midwest experiencing the most significant drop at 19%. Although building activity increased in the West, it remains slower compared to most of the previous year. Additionally, home completions also fell, with the number of multifamily projects under construction dropping to the lowest since September 2022. The construction of single-family units reached its weakest level this year.
With the Biden Admin still doing all it can to make life hard for the American people, and drive up prices everywhere due to excessive deficit spending, this situation will be getting far worse over the coming months.
Key Points:
i. Housing starts in the US fell by 5.5% to a 1.28 million annualized rate in the latest report, marking a significant decline.
ii. Building permits, an indicator of future construction, decreased by 3.8% to a 1.39 million annual rate, the lowest since June 2020.
iii. The drop in both housing starts and permits affected multifamily and single-family units, with single-family permits falling for the fourth consecutive month.
iv. This decline in homebuilding suggests that residential construction may negatively impact economic growth, with economists linking the decrease to restrictive monetary policies.
v. Despite cooling inflation and consumer spending, the ongoing housing shortage and high borrowing costs continue to keep home prices elevated and limit homeownership opportunities for many Americans.
Lap Fu Ip – Reprinted with permission of Whatfinger News
