U.S. Housing Starts Stabilize as Developers Move Cautiously Forward: Report

August was a mixed month for the national housing market in terms of project starts, but trends seemed to stabilize overall as developers tighten their construction pipelines while moving forward with already-approved projects. 

Overall housing starts in the U.S. declined in August, falling 2.6 percent month-over-month to a seasonally adjusted annual rate of 1.3 million units, according to data from financial services company First American Financial Corporation. 

Meanwhile, single-family starts increased 7.6 percent in August to 918,000 units, and multifamily starts — defined by First American as projects of five or more units — declined 22.5 percent month-over-month to 344,000 units.

The data shows that single-family builders are managing their construction pipeline “cautiously,” while multifamily builders are stalling as they adjust to lower demand and slower absorption, according to First American. 

And, now, multifamily developers — and their buyers — have to contend with the 30-year mortgage rate jumping over 7 percent. 

“Single-family construction showed some life in August, but builders aren’t stepping on the gas just yet,” Mark Fleming, chief economist at First American, said in a statement to Commercial Observer. “New-home inventory remains elevated, affordability is still keeping buyers on the sidelines, and incentives are doing much of the work to generate sales. Until demand strengthens more convincingly, builders will continue to manage the construction pipeline cautiously.”

Still, overall housing starts in August were revised up to 1.3 million from 1.2 million, and single-family starts were revised to 853,000, from 808,000, the First American Financial data shows. Plus, construction activity in July was “more robust” than originally anticipated, while the six-month trend for starts has “stabilized” as permits and completions trend downwards, Fleming said.

“One month of data does not change the bigger picture,” Fleming said in a statement. “Months’ supply of new homes remains elevated, and permit growth has generally slowed as inventory has accumulated. With plenty of new homes already available relative to the current pace of sales, builders have little reason to push production much higher until that inventory comes down or demand improves.”

Builder sentiment — which the National Association of Home Builders measures on a scale from 0 to 100 — echoes this narrative, as builder confidence rose 3 points to 32 in September and has been below 40 for nearly two years. Additionally, prospective buyer traffic is only at 23 on that scale, according to First American. 

“August leaves us with a mixed picture,” Fleming concluded. “Single-family permits and completions trended lower, while the trend in starts stabilized. With new-home inventory still elevated and buyers sensitive to affordability, builders remain cautious until they see a more convincing increase in demand. 

“For homebuilding to regain momentum, builders need some improvement in affordability and relief from the costs that continue to squeeze new construction,” Fleming added.

Amanda Schiavo can be reached at aschiavo@commercialobserver.com.