New Home Construction in the US Falls Again

In the month of June 2023, the United States witnessed another decline in new home construction, following a brief increase in the previous month.

In the month of June 2023, the United States witnessed another decline in new home construction, following a brief increase in the previous month. Recent government statistics, released on July 19, reveal that the number of new homes initiated in the US decreased by 8% compared to May. This drop brings the total to 1.43 million units, slightly lower than the estimated average of 1.48 million units predicted by Bloomberg.

Additionally, data from the Mortgage Bankers Association highlights a drop in home applications during the last week, as interest rates on 30-year fixed mortgages remained around 7%. These figures indicate a concerning trend in the housing market, raising questions about the potential implications for the overall economy.

Breaking down the June data, it becomes apparent that single-family home construction experienced a significant decrease of 7%, while apartment construction declined by nearly 10%. It is worth noting that this decline in construction activity affected all regions except for the western states. While the reasons behind this regional outlier remain unclear, it signifies a potential area of growth amidst an otherwise challenging environment.

On the other hand, the number of building permit applications decreased by 3.7% to 1.44 million. However, a silver lining can be found in the fact that permits for single-family construction rose to a one-year high. This could indicate that construction companies are actively trying to address the shortage of available homes by seeking permits for new projects. Despite the overall decrease in construction, this highlights the industry's concerted efforts to bridge the gap in housing supply.

Interestingly, while borrowing costs remain high, the limited availability of housing, combined with the numerous incentives offered by construction companies, is attracting buyers' increased interest in new-build homes. This heightened demand has the potential to generate increased income for these construction companies. Thus, despite the decline in new construction activity, the number of homes beginning to be built is actually growing at a faster rate than prior to the eruption of the COVID-19 pandemic.