Instant Reaction: Housing Starts, July 19, 2022
Homebuilders have become extremely cautious about the prospect of single-family home sales, while multifamily activity remains robust. Single-family units fell to 982,000 in June, the lowest level since the pandemic lockdown of March 2020, while multifamily starts reached 577,000, one of the highest levels in 30 years. Moreover, housing permits, which can be regarded as a leading indicator for future housing starts, showed a further decline in single-family units and an increase in multifamily units. There have been frequent reports of contract cancellations by buyers of newly constructed homes because they had signed a contract at the early stage of construction when the mortgage rates were low. But, as the completion of construction has taken longer, the home now requires financing at a much higher mortgage rate.
Interestingly, the days on market since completion remains reasonably swift at 2.4 months. The norm is around 3 to 4 months. Homebuilders have been facing supply-chain disruptions and many homes started multiple months ago have yet to be completed. Homebuilders are waiting to see how these homes will sell before starting new construction. As for the overall market, there appears to be a shift away from homeownership to renting. Additionally, housing supply challenges will continue in the coming months and into next year.