Housing starts slipped in August as multifamily construction sank, though permits for single-family homes accelerated.
New U.S. home construction fell by 11.3% last month, according to data from the U.S. Census Bureau, to an annualized rate of 1.28 million. Single-family starts were down 4.3% from July.
Permits for new construction rose to their fastest pace in nearly a year, however, up 6.9% to 1.54 million. Permits offer an indication of how many homes will be built in the coming months.
Permits for single-family homes in particular soared to their fastest pace since May 2022.
This suggests that builders are optimistic about demand moving forward. But they’ve recently taken a hit from the high-rate environment, leading to depressed homebuilder sentiment. The National Association of Home Builders latest confidence index declined to its break-even reading for the first time in five months.
“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power,” said NAHB Chairman Alicia Huey.
“And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots, and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector.”
Floridians and Californians in particular are facing an insurance crisis that may dissuade them from buying a home.
Storms and disasters have led major insurers to halt new policies in these states, saying coverage is now too expensive.
The average annual home insurance premium is now $1,300 in California, up 16% from 2019.
“When you have rising construction costs and then the potential for widespread losses, that’s what exacerbates problems in these areas,” David Blades, associate director for industry research and analytics at AM Best, a global credit agency and data group, told NBC.
It is currently costlier than ever to build a new home. The price of materials alone has inflated 35% since the beginning of the pandemic.
The Federal Emergency Management Agency assigns a risk rating denoting the probability and severity of natural disasters across the United States. Homeowners located in “very high” risk areas pay almost 2.5 times more for insurance than those living in areas of “very low” risk.
Still, American homebuyers are leaving less risky regions and flocking to these states, lured in by warmer winters, work opportunities, or more affordable housing.
“People have been gravitating to places with severe climate risk because many of these areas are relatively affordable, have lower property taxes, more housing options, or access to nature,” Redfin Economist Sebastian Sandoval-Olascoaga said of the trend.
“For a lot of people, these benefits seem to outweigh the dangers of climate change. But as natural disasters become more frequent, homeowners in these areas may end up losing property value or face considerable difficulty getting their properties insured against environmental disasters.”
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