Tuesday’s housing starts report clearly shows that homebuilders are going to be done with single-family construction until mortgage rates fall. Housing completion data is still struggling to get some traction, but in the coming months, builders should be able to get more housing completions done while housing permits and starts for single-family homes are in decline. If it wasn’t for solid rental demand boosting multifamily construction this year — 18% year to date —this data line would have looked much worse.
Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,446,000. This is 9.6 percent (±8.6 percent) below the revised June estimate of 1,599,000 and is 8.1 percent (±11.9 percent)* below the July 2021 rate of 1,573,000. Single‐family housing starts in July were at a rate of 916,000; this is 10.1 percent (±10.8 percent)* below the revised June figure of 1,019,000. The July rate for units in buildings with five units or more was 514,000.
Of course, housing starts today aren’t collapsing in the way they did from the peak of 2005 because we haven’t had a sales credit boom in recent years as we did from 2002-2005, which inflated new home sales toward 1.4 million.
Currently, we are in a much different housing recession than what we had from 2005-2011. The credit cycle looks much different now than the build-up from 2002-2005.
Why do I call it a housing recession? A recession is when total activity falls to a point where production reverses and jobs are lost. For now, the homebuilders will keep labor because they need to finish the homes they have in the pipeline. However, as new home sales have fallen, the future growth in construction is done until the builders feel comfortable building more single-family starts.
As we can see below, single-family starts are falling more noticeably than total housing starts, which is still being boosted by rental demand.
Total activity in the existing home sales marketplace is falling, which means less commission transfer in that sector. Loan originations are falling amid less demand from refinancing and purchase loans, which means jobs are lost in the mortgage industry. That aspect differs from the new home sales selector, which drives housing construction, construction jobs, and big-ticket purchases for those new homes. The recent decline in copper prices is very telling; even with a recent rebound in prices, things are slowing down on the housing construction side.
In March I wrote that the new home sales sector was at risk once the 10-year yield broke over 1.94%. Currently, the 10-year yield is at 2.81%, and mortgage rates above 5% have impacted this …….