New U.S. home construction tumbled in June after rising the previous month, the latest sign that challenges within the housing market persist.
Housing starts slid 8% last month to an annual rate of 1.43 million units, according to new Commerce Department data released Wednesday. That is slightly above Refinitiv economists' forecast for a pace of 1.48 million units.
In a sign the deep freeze that has paralyzed the housing market for months is not over yet, applications to build – which measures future construction – fell 3.7% over the course of the month to an annualized rate of 1.44 million units. Compared with the same time last year, building permits are down about 15.3%.
A house for sale in Arlington, Virginia, on July 13, 2023. (Saul Loeb/AFP via Getty Images / Getty Images)
"While homebuilders are remaining confident in the market with overall sentiment increasing again in June, the new construction market remains a rocky landscape," said Nicole Bachaud, Zillow senior economist. "Increasing costs and labor shortages are still impacting builders' ability to meet the demand for new housing."
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose one point to 56, the highest reading since June 2022. Any reading above 50 is considered positive.
Sentiment has been steadily rising as a worsening inventory shortage buoys consumer demand for new homes.
But builders say the industry continues to grapple with other problems, including high mortgage rates, elevated construction costs and limited lot availability, according to the report.
Homes in a subdivision in Atlanta, Georgia, on Nov. 13, 2022. (Elijah Nouvelage/Bloomberg via Getty Images / Getty Images)
"The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers," said Alicia Huey, NAHB chair and a homebuilder from Alabama. "At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability."
The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% last year, quickly cooling the red-hot housing market. But rates have been slow to retreat from the nearly two-decade high, forcing many would-be buyers out of the market.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.96%, according to Freddie Mac, well above the 5.51% rate recorded one year ago and the pre-pandemic average of 3.9%.