Housing construction declined last month, but the future looks brighter thanks to a bump in permits.
New U.S. home construction rose for the first time in six months, according to data from the U.S. Census Bureau. Residential starts fell by 8% to an annualized rate of 1.43 million.
This is well below estimates from economists surveyed by Bloomberg, who expected a pace of 1.48 million.
Permits for new construction also dipped, down 3.7%% to a rate of 1.44 million. Permits offer an indication of how many homes will be built in the coming months.
But on the bright side, single-family construction permits in particular saw an increase, up 2.2% from May to the highest pace since June 2022.
Builders continue to work under pressure as housing demand outstrips existing inventory.
Homebuilder sentiment has now increased for seven consecutive months, though rising rates are putting a damper on their optimism. The National Association of Home Builders attributes June’s overall housing start decline to the high-rate environment.
“Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said NAHB Chief Economist Robert Dietz.
But NAHB is hopeful that rates will retreat as inflation cools, the Fed pauses rate hikes, and inventory picks up.
“While builders have slowed construction activity as interest rates have approached 7%, we anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve’s tightening cycle,” Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, said.
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