U.S. single-family homebuilding fell in August, likely as a resurgence in mortgage rates weighed on demand for new construction.
Single-family housing starts, which account for the bulk of homebuilding, dropped 4.3% to a seasonally adjusted annual rate of 941,000 units last month, the Commerce Department said on Tuesday. Data for July was unrevised to show starts accelerating to rate of 983,000 units as previously reported.
Demand for new construction has been boosted by an acute shortage of previously owned homes on the market, with homebuilding rising for much of this year and breathing some life into the housing market, which has been hardest hit by the Federal Reserve's aggressive monetary policy tightening.
But a recent surge in mortgage rates, in tandem with U.S. Treasury yields, is pushing buyers to the sidelines. The average rate on the popular 30-year fixed mortgage is hovering around 7.18%, the highest since March 2002, according to data from mortgage finance agency Freddie Mac.
The resurgence in mortgage rates is weighing on sentiment among homebuilders. A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Index dropped in September below the break-even mark of 50 for the first time in five months. The survey's measure of prospective buyers tumbled to the lowest level since February.
Starts for housing projects with five units or more plunged 26.3% to a rate of 334,000 units in August. Multi-family housing construction appears to have peaked in April 2022, when it was fueled by demand for rental accommodation as higher mortgage rates priced out potential home buyers.
Tighter financial conditions, which are limiting credit access for builders as well as a huge stock of multi-family housing under construction are slowing activity.
Overall housing starts tumbled 11.3% to a rate of 1.283 million units in August. Economists polled by Reuters had forecast starts slipping to a rate of 1.440 million units.
Permits for future construction of single-family homes rose 2.0% in August to a rate of 949,000 units.
Residential investment has contracted for nine straight quarters, the longest such stretch since the housing market bubble burst, triggering the 2008 global financial crisis and the Great Recession.
