NewsNew Housing Starts Declined in July, Another Sign of a Cooling Housing...

New Housing Starts Declined in July, Another Sign of a Cooling Housing Market

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The American housing market has cooled down substantially over the course of 2022, with demand for homebuying down 20% compared to a year ago. The decline in homebuying demand is mostly a consequence of rising sales prices and interest rates that have made purchasing a house unaffordable for a growing number of Americans. 

Mortgage demand is now at a 22-year low after mortgage applications recently fell to levels not seen since the turn of the century. Developers have taken note of the declining mortgage demand, as they have also started to pull back on new residential development. 

In another sign that the demand for purchasing a home is cooling down, U.S. Census data found that new housing starts declined between June and July by more than what economists predicted. Overall, housing starts fell from 1,599,000 in June to a seasonally-adjusted 1,446,000 in July, a 9.6% monthly decline. Single-family housing starts declined by 10.1%. 

New multi-family construction starts, defined as homes in buildings with five or more residential units, decreased from 568,000 in June to 514,000 in July, a 9.5%  monthly decline. 

Total construction starts were actually up by 48% in July, but only because of big spikes in infrastructure and manufacturing construction. 

The U.S. Census also tracks monthly building permit and housing completion data, both of which only moved much more modestly month-over-month. Building permits fell slightly from June to July, decreasing from 1,696,000 to 1,674,000 newly authorized units, a 1.3% decline. Single-family permits totaled 928,000, a 4.3% decline from June, while permits for multifamily units reached 693,000, a 4.0% increase from June’s 666,000. 

Housing completions totaled 1,424,000 in July, a 1.1% increase from June’s 1,409,000. Single‐family housing completions fell by 0.8% in July, while multifamily completions increased 12.5%. 

Matt Klinger, building products research manager at John Burns Real Estate Consulting, told Bisnow that overall economic conditions also affect homebuyer demand. 

“Cancellation rates are spiking up over the past few months, sales are declining, and new housing starts are definitely cooling,” said Klinger. “The Federal Reserve rate hike is definitely having an effect on builder sentiment — and consumer sentiment. Homeowners are concerned about the general economy right now.”

A recent Moody’s Analytics forecast predicts that the housing market will rise 0 percent next year, compared to nearly 20% growth over the most recent twelve months. The shocking stagnation in prices will come because homebuyers don’t have the ability or desire to purchase properties at costs higher than current levels. With home prices and interest rates already sky-high, sellers may have to moderate prices to compete. Of course, changes will vary depending on the market — some will see modest increases, with others declining slightly. 

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