The United States Census Bureau released its Residential Construction report for the month of June. This report showed that Housing Starts, or the beginning of a new construction home, fell by 8% month over month, which was lower than expectations. Year over year, Housing Starts are up 8.1%. Single Family Starts fell 7% for the month. Year over year, Single Family Starts are down 7.4%. This will continue to keep supply very tight. Housing Permits, which is where future housing supply comes from, were down 3.7% last month and down 15.3% year over year. Housing Completions fell by 3.3% for the month and are up 5.5% year over year. Single Family Completions fell by 2.8% for the month. It is evident that we are very undersupplied, and we can also see that there is not much inventory on the way. Also, with construction costs being priced so high along with the Fed hiking rates so aggressively, it makes less sense for builders to construct homes. And considering the new supply of homes coming to the market, which should be around 1.3 million annualized give or take. This is still well below demand or “household formations” which is around 1.5 million. However, this should be very supportive of home values.
Another important construction report that was recently released was the National Association of Home Builders, Housing Market Index (NAHB). This report measures builder confidence. The report rose by 1 point in July to 56 and is above the breakeven of 50. This breakeven is important because it measures the level between expansion and contraction. Builder confidence has risen for 7 months straight and is now at the highest level it’s been at since June of 2022. When looking deeper into the report, the Current Sales segment was up by 1 point to 62. Future Sales Expectations fell by 2 points to 60. Buyer Traffic rose by 3 points to 40, but was still below 50, which is seen as less optimistic, however, still getting closer to the 50 breakeven level.
Despite elevated interest rates, home builders’ use of sales incentives has declined due to the housing market firming and resale inventory options remaining limited. Only 22% of builders have reported cutting prices in July. Overall, this report does point to growing optimism in new home construction.
There is certainly growing optimism by builders in new homes as opportunity is growing as existing home inventories dwindle.
