Housing starts surprised the industry with a boost in August, though building permits lagged at their slowest pace the last two years.
Starts increased 12.2% month-over-month to an annualized rate of 1.575 million units in August, exceeding market expectations of 1.445 million. This is the largest jump since March last year.
But while the data may be positive, housing still faces pressure from inflated material costs and rising interest rates. Single-family starts increased by only 3.4%. The unexpected jump was propelled by a 28.6% surge in demand for buildings with five or more units, suggesting builders are betting on the hot rental market to stay.
That prospect doesn’t bode well for the homebuilders. Builder sentiment dropped three points in September, the ninth straight month of declines.
“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga.
“In another indicator of a weakening market, 24% of builders reported reducing home prices, up from 19% last month.”
The Midwest saw the most starts, up by 19.3% to 167,000, followed by the South (24.5%, 885,000) and the West (1.1%, 361,000). Starts declined in the Northeast by 17.3%.
The Northeast may see a boost in the future, however. Demand in this region has skyrocketed this year as Americans search for affordable homes. Buyers from areas in the South and West, which both saw serious price growth in the last year, are moving to New England to save money.
Six of the top 10 places on Realtor.com’s list of the hottest zip codes in the US this year are in New England.
“We have seen the hottest zip codes migrate east as the success of housing markets in the Sun Belt and the West have made those regions less enticing for a lot of homebuyers,” Danielle Hale, chief economist at Realtor.com, told Bloomberg.