July Housing Starts: Builders Rethink Future Plans

• Housing starts fell to 1.45 million in July, down 9.6% from revised June 2022 figures and down 8.1% from July 2021, according to the U.S. Census Bureau. 
• Housing permits issued in July were down 1.3% from June and up 1.1% from a year ago, to 1.67 million (SAAR). 
• 1.42 million (SAAR) homes were completed in July, up 1.1% from June and up 3.5% year-over-year.

The rebalancing of the housing market is causing builders to rethink their future plans. In July, housing starts fell below consensus and below 2021 levels, continuing a trend started as mortgage rates picked up this spring. The cost of a home purchase is causing more buyers to walk away from the market, and builders are adjusting accordingly as builder sentiment dropped to two-year lows at the latest reading. However, permits slightly beat expectations, only falling slightly from a month ago and up from last year. Adding additional inventory to this market will help the rebalancing and reduce the affordability burden facing buyers, so although builders are cutting back on starts today, an upside to new housing permits for homes to be built tomorrow can be a positive signal that builders aren’t ready to throw in the towel quite yet. And new home completions are also trending up, pumping out new homes to a slowing market, but one that is still desperate for new inventory. But this shouldn’t gloss over the significant drop in housing starts, as that will impact the new homes coming to the market in the near term. With fewer new homes coming to the market throughout this year and next, affordability will continue to plague the housing market as low inventory will keep prices from falling substantially, continuing to block potential buyers from entering the market and perpetuating the low sales levels that are impacting builders now. The housing market is a long way from being rebalanced, but the process is in motion. However, current rates of new construction starts and permits are sending mixed signals but are overall discouraging, and it’s uncertain if inventory will ever return to pre-pandemic levels or when affordability for buyers will improve.