The United States Census Bureau released its Residential Construction report for the month of July, and it showed that Housing Starts, or the breaking of ground, rose by 3.9% in July to a 1.452 million unit annualized pace. Year over year, Housing Starts are up by 5.9%. Single-Family Housing Starts rose 6.7% last month at a 983,000-unit pace. Year over year, Single Family Starts are now up 9.5%. Housing Permits, which points to future supply, were flat last month at a 1.442-million-unit annualized pace and down 13% year over year. Single Family permits were up 0.6% last month and up 1.3% year over year. When considering the last few months, Starts and Permits were higher than the previous figures seen last year. This is great news, but there are still not enough homes being completed to satisfy demand. Housing Completions fell by 12% in July and Single-Family Completions rose by 1.3%. It is evident that we are very undersupplied, and we can also see that there is not much inventory on the way. And with construction costs being so high along with the Fed hiking rates so aggressively, it certainly makes it more difficult for builders to construct homes.
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 fell by 6 points after rising seven months in a row. Overall, the index fell from 56 to 50, which is right at the midpoint of the index. This breakeven is important because it measures the level between expansion and contraction. When looking deeper into the report, the Current Sales segment was down 5 points to 57. Future Sales Expectations fell 4 points to 55 and Buyer Traffic fell 6 points to 34. Some reasons for this decline could be attributed to rising mortgage rates, high construction costs due to a lack of labor, and a lack of buildable lots. On top of all that, July was the warmest month we have seen on record. This might have deterred some buyers from shopping.
Clearly, there is still a struggle for builders to build enough new homes to satisfy demand. However, the demand for homes is still high. When coupled with the lack of inventory, this market is still supportive of home values.
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By: Jon Iacono