Higher mortgage rates averaging above 7% put a damper on single-family production in August, as builders also continue to face supply-side challenges in the form of elevated construction costs, a lack of skilled labor and a shortage of buildable lots.
Led by a sharp decline in multifamily production, overall housing starts declined 11.3% to a seasonally adjusted annual rate of 1.28 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
The August reading of 1.28 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts declined 4.3% to a 941,000 seasonally adjusted annual rate. The three-month moving average (a useful gauge given recent volatility) edged down to 951,000 starts, as charted below. On a year-over-year basis, single-family housing starts are up 2.4% compared to August 2022. However, single-family housing starts are down 15.1% on a year-to-date basis.
The multifamily sector, which includes for-rent apartment buildings and condos, decreased 26.3% to an annualized 342,000 pace for 2+ unit construction in August. The three-month moving average for multifamily construction has been trending down to a 431,000-unit annual rate. On a year-over-year basis, multifamily construction is down 41.6%. On a year-to-date basis, multifamily starts are down 29.3% for 2-4 units and 6.6% for 5+ units.
On a regional and year-to-date basis, combined single-family and multifamily starts are 22.8% lower in the Northeast, 13.6% lower in the Midwest, 8.8% lower in the South and 16.5% lower in the West.
As an indicator of the economic impact of housing, there are now 676,000 single-family homes under construction. This is 16.3% lower than a year ago. Meanwhile. there are currently over 1 million apartments under construction. This is up 13.2% compared to a year ago (894,000). Total housing units now under construction (single-family and multifamily combined) are 0.8% lower than a year ago.
Overall permits increased 6.9% to a 1.54 million unit annualized rate in August. Single-family permits increased 2.0% to a 949,000 unit rate. Single-family permits are also up 7.2% compared to a year ago. Multifamily permits increased 15.8% to an annualized 594,000 pace but multifamily permits are down 15.3% compared to August 2022, which is a sign of future apartment construction slowing.
Looking at regional permit data on a year-to-date basis, permits are 22.9% lower in the Northeast, 17.2% lower in the Midwest, 13.3% lower in the South and 18.2% lower in the West.
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With fewer new projects initiated, builders might find it harder to secure construction loans. Lenders may adopt a cautious approach, reflecting the decreased demand and potential risks associated with financing construction ventures in a market influenced by escalating mortgage rates.