New Home Construction Hits a Four-Year Low as Buyers are Priced Out

Sky-High Prices and Rising Mortgage Rates

US construction of new homes dropped to a four-year low last month as would-be homebuyers remain priced out by the market's high prices and rising mortgage rates.

Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.56 million units.

For the past two years, potential homebuyers have faced a double whammy of high prices and high mortgage rates.

Slowing Construction

US housing starts fell 6.3 percent to an annual rate of 1.56 million units in June, the Census Bureau said.

As new home construction slows, first-time homebuyers are finding it increasingly difficult to enter the market.

As home prices have steadily climbed over the past few months—fueled by low mortgage rates—motivated buyers looking for more space are waiting it out.

Shortage of Homes

The annual pace of new home construction surged last month amid a historic shortage of housing inventory and falling mortgage rates.

The April survey found that 22% of builders cut home prices this month, down from 24% in March and 36% in December 2023.

Home prices rose nearly 20% last year, in large part because the US is several million homes short of demand.

Shifting Trends

The exploding demand of the past year in conjunction with a historically low supply of housing has led buyers to desperately bid up the prices.

But as the cost of buying a home has exploded and McMansions have fallen out of favor, homebuilders have reversed course, building smaller homes.

Washington, DC, CNN – Amid a housing shortage and an affordability crisis, US homebuilding heated up in February as builders raced to meet demand.

June Slump

New home construction slumped in June as both housing permits and new home starts fell from May levels, the Census Bureau and the Department of Housing and Urban Development reported.

Regional Disparities

Rural areas saw disproportionate home price growth during the pandemic, as demand for bigger and more expensive accommodations amid the COVID-19 pandemic left millions of Americans working remotely.

Rising interest rates and record home prices are making it impossible for many Americans to buy a house, causing builders to pull back.

Economic Factors

Another possibility is that the cost of new-home construction increased rapidly, particularly in supply-constrained markets on both coasts.

Sales of new single-family homes in the United States fell last month while prices continued to spike to record highs with eager house hunters facing limited options.

The unprecedented surge in construction costs is having a significant impact on both new and existing commercial real estate (CRE).

Industry Challenges

The shortage is delaying construction of badly needed new homes.

Lumber production is taking the latest economic hit caused by the COVID-19 pandemic, as the demand for lumber has increased significantly.

A combination of ever-increasing costs, inflation, and the specter of a recession has hit the new home market, CNBC reports.

Conclusion

The slowdown in new home construction is a reflection of the challenges facing the US housing market.

High prices, rising mortgage rates, and a shortage of homes are making it difficult for many Americans to buy a home.

As the market continues to evolve, it remains to be seen how these challenges will be addressed and what the long-term impact will be on the housing industry.