Single-family housing starts declined in June after increasing during the past four months. Starts declined 7% to a seasonally adjusted annualized rate of 935,000 in June, according to the U.S. Census Bureau and Department of Housing and Urban Development.
Overall in June, privately owned starts decreased 8% month over month and 8.1% year over year to a seasonally adjusted annual rate of 1,434,000.
According to Fannie Mae deputy chief economist Mark Palim, the single-family starts decline was “in line” with expectations following the “unusually large” 18.7% increase in May.
“Builders are capitalizing on their current market share by starting more homes to meet today’s demand,” says Zonda chief economist Ali Wolf. “Importantly, we know that 75% of builders are saying it’s only taking four to seven months to get these homes built. This is a massive improvement compared to the height of the market when some builders were quoting 12-plus months.”
While starts declined month over month, single-family units authorized by building permits increased 2.2% in June to an annualized rate of 922,000. Overall, permit activity declined 3.7% month over month and 15.3% year over year to an annualized rate of 1,440,000.
Single-family completions in June decreased 2.8% month over month in June to a rate of 986,000, and privately owned housing completions last month decreased 3.3% to a rate of 1,468,000. The completions pace for the overall market was 5.5% above the annualized rate of completions in June 2022.
“Signs continue to point to a clearing of previous backlogs caused by material and labor shortages, as the number of single-family units under construction has fallen 17% over the past year,” says Palim. “Additionally, the rate of permits and starts are continuing to converge with completions, which have hovered around an annualized pace of 1 million over the same period.”
Palim says while Fannie Mae projects a pullback in single-family starts by the end of 2023, the forecast “is contingent on broader economic conditions weakening.” Should the economy continue to expand in the coming quarters, Fannie Mae predicts starts could move toward an annualized pace of 1 million units, largely due to strong demand and the ongoing lack of existing homes available for sale.
Wolf says the June data on the multifamily market “continues to surprise to the positive.” Permits for buildings with five units or more was at a rate of 467,000 in June, while the starts rate for units in buildings with five units or more was 482,000. The June completion rate for units in buildings with five units or more was 476,000. Palim says the rate of multifamily starts is expected to slow as national rent growth is sluggish and tighter bank lending conditions likely weigh on future projects.
“Qualitative information on multifamily development tells us that capital has dried up and the market is frozen,” says Wolf. “The data today tells a different story, one where starts are going gangbusters. We suspect the data will start to catch up with reality by the end of the year.”