Rising mortgage rates and ongoing supply chain disruptions are pressing on new-home costs and taking a toll on construction, homebuilders report.
Single-family housing starts fell for the second consecutive month, dropping 7.3% in April to a seasonally adjusted annual rate of 1.10 million, the Commerce Department reported this week.
“Lower single-family construction starts in April reflects our recent builder surveys showing notably weaker confidence in the single-family market, as rising mortgage rates and building material costs are driving more potential buyers out of the market,” says Jerry Konter, chairman of the National Association of Home Builders. Building material costs are up 19% over a year ago.
Still, housing starts were nearly 15% higher than a year ago. But the gain was driven mostly by multifamily construction. That sector, which includes apartment buildings and condos, rose 15.3% to an annualized 624,000 pace, the highest pace in nearly 40 years, the Commerce Department reports.
“Builders are responding to higher mortgage rates and are chasing rising rents, with fewer home buyers and more renters being forced to renew their leases,” Lawrence Yun, chief economist of the National Association of REALTORS®, said in a statement in reaction to the latest new-home data. “Even before the rise in interest rates, apartment vacancy rates were at historic lows and rents were accelerating. Some degree of a return to the office is also fueling back-to-city living where high rises are concentrated.”
Robert Dietz, NAHB’s chief economist, says they are predicting flat conditions in new-home construction for the remainder of the year and a decline in 2023 as housing affordability challenges from higher mortgage rates and construction continue to batter the sector. Single-family permits, a gauge of future construction, fell 2.3% on a year-to-date basis so far in 2022.