Shelter Shock: Interest Rates Send New US Home Construction into Freefall

Builders Reel as Housing Starts Plummet to Pandemic Lows

US new-home construction experienced a significant downturn in July, plunging to its lowest level since the aftermath of the pandemic.

Builders are reacting to a weakened demand as construction of new homes fell by 68%, resulting in a 124 million annual pace for housing starts, according to data from the Commerce Department.

Factors Driving the Decline:

• Elevated Interest Rates: Higher-for-longer interest rates have significantly impacted the housing market, making it more expensive to finance new homes.
• Weak Demand: Rising inflation and economic uncertainty have dampened demand for new homes, leading to fewer buyers entering the market.

Behind the Numbers:

• Single-family housing starts dropped 7.3% in July, reaching an annual rate of 894,000.
• Construction of multi-family homes, including apartments and condominiums, declined by 12.2% to an annual pace of 350,000.

Impact on the Housing Industry:

The decline in new-home construction has had a ripple effect on the construction industry, leading to layoffs and delays in new projects as builders adapt to the changing market conditions.

Outlook:

Experts predict that the housing market slowdown will continue in the coming months as interest rates remain high and economic uncertainty persists.

However, the long-term outlook for the housing market remains positive as the underlying demand for housing is expected to increase once the economy recovers.

Additional Resources:

• Commerce Department: New Residential Construction, July 2023
• CNBC: New home construction falls to lowest level since June 2020