June Witnesses 8% Decline in U.S. Housing, Marking the Largest Drop in a Year
In June, there was an 8% decline in construction activity for new homes, as U.S. homebuilders shifted their focus from starting new single-family homes to completing existing projects. The latest data from the government on Wednesday revealed that housing starts dropped to a 1.43 million annual pace last month, down from 1.56 million in May.
The slowdown in construction during June came after a significant 16% increase the previous month, which had been surpassed only by a surge in construction back in March 2021. Economists on Wall Street had anticipated a sharper decline of 9.2%, but the actual decrease was slightly less pronounced. All the figures have been seasonally adjusted, and the last time there was such a significant decline in housing starts was back in July 2022.
Both single and multi-family construction experienced a decline in June, as home builders scaled back on new projects in order to concentrate on completing and selling existing inventory. However, there continues to be strong demand for new homes from prospective buyers, who face limited options in the resale market for existing homes.
The Midwest region saw the greatest decline in construction activity this summer, with housing starts dropping by 33%. Building permits, which are a key indicator of future construction, also decreased by 3.7% to a rate of 1.44 million. Notably, the Midwest experienced the largest decline in housing starts following a substantial surge of 67% in May.
The only part of the United States where there was an increase in housing starts during June was in the West, where single-family home construction rose by 4.6%. Meanwhile, permits for single-family homes saw a 2.2% increase, while permits for buildings with five units or more decreased by 13.5%.
After a boost in construction activity for single-family homes at the end of spring, builders have now shifted their focus towards completing ongoing projects. As of June, there were 1.68 million homes under construction, marking the highest level since February. Despite this shift, the demand for new homes remains strong, and builders have reduced sales incentives, such as price cuts, according to the National Association of Home Builders. Stephen Stanley, Chief U.S. Economist at Santander U.S. Capital Markets, noted that single-family housing starts had shown strength in both May and June.
Based on current data, it is evident that single-family home-building remains at a higher level during the spring and summer seasons. This indication implies that housing activity is, at the very least, stabilizing after a challenging second half of 2022,” he further elaborated.
In correspondence, Katherine Judge from CIBC Economics stated, “The general decline in building and permit issuance serves as a positive indicator for the Federal Reserve, as they prioritize managing housing market activity in an attempt to control inflation.”