Rising interest rates and ongoing building material supply chain disruptions that raise construction costs continue to be significant headwinds on the housing market. According to the National Association of Home Builders, builder confidence has taken a steep drop as these obstacles have caused double-digit price increases on material costs and ongoing home price appreciation, creating growing affordability challenges and impacting buyer demand.
Overall housing starts fell 14.4% to a seasonally adjusted annual rate of 1.55 million units in May from the previous month, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The May reading of 1.55 million starts is the number of housing units that builders would begin if development kept this pace for the next 12 months.
Within the overall number, single-family housing starts decreased 9.2% to a 1.05 million annual rate. The multifamily sector, which includes apartment buildings and condos, decreased 23.7% to an annualized 498,000 pace.
"Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability," said Jerry Konter, chairman of the NAHB. "Moreover, construction costs continue to rise, with residential construction materials up 19% from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and homebuyers."
"In further signs that the housing market is weakening, single-family permits are down 2.5% on a year-to-date basis and home builder confidence has declined for the last six months," added NAHB Chief Economist Robert Dietz.
Builder confidence for newly built single-family homes fell eight points to 69 in May, according to the NAHB/Wells Fargo Housing Market Index. It was the fifth straight month that builder sentiment declined and the lowest reading since June 2020. The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months and asks builders to rate traffic of prospective buyers. A score of over 50 indicates that more builders view conditions as good than poor.
NAHB estimates less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time homebuyers are especially bearing the brunt of the rapid rise in mortgage rates.
"The economic climate has impacted the housing market in more ways than one. The housing shortage affects every region in the country. According to the National Association of Realtors, the lack of new construction and underinvestment has created an underbuilding gap of 5.5 to 6.8 million housing units since 2001," said Brett Caviness, president of the Silicon Valley Association of Realtors.
An increase in housing supply is key to easing affordability challenges, stressed Caviness. "The chronic shortage of homes is so severe that it would take more than a decade to solve even if new construction is accelerated. We need a major national commitment to build more housing of all types. Realtors continue to urge policymakers at the local, state and national levels to take comprehensive action."
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