- U.S. housing starts fell 6.8% in July, reaching an annualized rate of 1.2M, the lowest mark since May 2020.
- The South saw a significant drop in new construction, potentially reflecting the impact of Hurricane Beryl.
- Big builders like Lennar Corp. and PulteGroup Inc. are gaining market share by offering incentives such as price cuts and mortgage rate buy-downs.
- Building permits fell 4% to a 1.4M annualized rate, pointing to potential future declines in construction activity.
According to Bloomberg, the U.S. housing market saw a sharp downturn in new home construction activity in July, with housing starts falling 6.8% to a 1.2M annualized rate.
Pandemic-Era Lows
The latest reading marks the lowest level of new home construction since the immediate aftermath of the pandemic in May 2020.
A significant portion of this decline was driven by a steep drop in single-family units, which saw their biggest reduction since April 2020.
Meanwhile, the South, a key region for homebuilding over the past few years, was particularly hard hit, possibly due to the impact of Hurricane Beryl.
Market Dynamics
The once-robust new-home market has cooled off considerably as high mortgage rates and home prices continue to deter potential buyers.
Builders, facing weaker demand, have responded by cutting back on new projects, leading to the lowest construction pace in over three years. At the same time, inventory levels have surged to their highest numbers since 2008, pressuring builders to slow down.
Despite the slowdown, completed single-family homes rose to their highest level in three months, staying well above pre-pandemic trends. Housing starts, however, remain volatile, with a 90% confidence interval ranging from a 17.1% decline to a 3.5% gain.
Large builders like Lennar Corp. (LEN) and PulteGroup Inc. (PHM) have also been able to maintain momentum by leveraging their financial strength to offer buyer incentives, such as price reductions and mortgage rate buy-downs.
Looking Forward
Looking forward, the industry is closely watching the Federal Reserve for potential interest rate cuts starting in September, which could provide much-needed relief.
Confidence among home builders has been slipping, reaching its lowest point of the year in August, reflecting uncertainty about the market’s future direction.
