Home construction fell to its lowest level in three years in August amid crushing mortgage rates – as experts warn, this could be a worrying sign for the economy.
- The number of new homes under construction fell last month to 1.3 million
- Last week, the average 30-year mortgage rate in the United States was 7.18%.
- Many potential buyers are hesitant to buy due to high prices.
Home construction fell in August to its lowest level since June 2020, as crushing mortgage rates limited demand for new homes.
The number of “housing starts” fell last month to 1.3 million, 11.3 percent less than in July and 14.8 percent less than last August, according to data released by the United States Census Bureau.
This comes just a day after the National Association of Homebuilders/Wells Fargo Housing Market Index, which gauges the single-family housing market, plunged 10 percent.
The real estate market is in a real impasse, the surge in mortgage rates having dissuaded movers.
The average 30-year mortgage rate hovers around 7.14%, according to the latest data from government-backed lender Freddie Mac. This is just below its highest level since 2002.
Housing construction fell in August to its lowest level since June 2020, according to data released by the US Census Bureau. Pictured are homes under construction in Encinitas, California in May.
The average 30-year mortgage rate hovers around 7.14%, according to the latest data from government-backed lender Freddie Mac.
Single-family homes, which account for the majority of housing starts, fell 4.3 percent from July, according to Census Bureau data.
“The combination of high interest rates, high prices and limited inventory has continued to hurt the real estate market,” Kelly Mangold of RCLCO Real Estate Consulting. told CNN.
“In many cases, even buying out their same home at current mortgage rates would be out of a typical buyer’s price range.”
Many Americans are now stuck in their current homes because their existing mortgage rates are low compared to what lenders are currently offering.
More than 90 percent of homeowners have a mortgage rate below 6 percent and many have rates closer to 2 or 3 percent, lower than the current rate of inflation.
As a result, very few homes are available for sale.
While that’s been a good thing for home builders, it hasn’t been enough to offset the fact that home prices have risen and potential buyers have been dissuaded from making purchases, according to Mangold.
“Motivated buyers can find a good deal as prices are stagnant and large builders able to offer mortgage buyouts are able to offer buyers a much more competitive deal than is available in the resale market,” he said. she declared to the media.
Experts warn that a slowdown in housing construction activity, which once resisted rising interest rates, is a warning sign for the economy.
“The sharp decline in housing starts is concerning because housing has been one of the pillars of the economy that has held up much better than expected,” said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance. Insider.
“If this turns out to be the first crack in an otherwise bulletproof consumer, it could change the narrative from an economy impervious to rapid interest rate hikes to one vulnerable and susceptible to a recession,” he added.
Homebuyers are facing the least affordable market since 2006 — below levels seen during the peak of the housing bubble that preceded the 2008 financial crisis, according to a separate analysis from the Atlanta Federal Reserve.
Homebuyers are facing the least affordable market since 2006, according to figures from the Federal Reserve Bank of Atlanta.
The Atlanta Fed uses home prices, mortgage rates and average incomes to calculate an “affordability” score each month.
The latest figures, from June 2023, show the score has plunged to 69.5, almost 40 points lower than it was in June 2020.