U.S. housing starts plunged to the lowest levels in more than two years last month, the U.S. Census Bureau indicated Tuesday, as mortgage rates remain near multi-decade highs and the job market shows signs of cooling into the autumn months.
August housing starts fell by a much-larger-than-expected 11.3% from July, the Census Bureau said, to an annual run rate of around 1.283 million units, well shy of analysts' estimates of a 1.44 million tally and the slowest pace since June of 2020.
Builders broke ground on new single family homes at an annualized rate of 941,000, down 4.3% from July and again well shy of economists' forecasts.
Permits for new construction, however,, a good indicator of near-term housing demand, rose 6.9% to a rate of 1.543 million units.
"The sharp drop in Housing Starts this morning is concerning because housing has been one of the pillars of the economy that has held up much better than expected," said Chris Zaccarelli, CIO for the Independent Advisor Alliance in Charlotte, North Carolina.
"If it turns out that this is the first crack in an otherwise bulletproof consumer then it could change the narrative from an economy that is impervious to rapid interest rate hikes to one that is vulnerable and susceptible to a recession," he added.
Housing starts had improved over the past year thanks in part to a consistent rise in new home sales, which have outpaced existing home sales as owners, locked into low mortgages, are reluctant to sell and refinance into a much higher rate.
July new home sales hit a 17-month high, in fact, rising 4.4% to an annualized rate of 714,000 as mortgage rates nudged past 7$ to the highest levels since 2001.
However, that relentless rise in mortgages costs, tied to the Federal Reserve's inflation fight, looks to have taken its toll on market sentiment, according to the National Association of Homebuilders.
The NAHB's closely-tracked survey of builder confidence fell six points to a six-month low of 45 points in September, and fell through the breakeven 50-point mark 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.”
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