New Home Construction Drops, but Experts Remain Optimistic
New housing construction is slowing, although real estate experts anticipate it will pick back up again throughout the rest of year as mortgage rates are expected to fall.
The number of new homes under construction fell 6.8% from June to July and plummeted 16% year-over-year, according to the seasonally adjusted numbers in a recent U.S. Census Bureau and U.S. Department of Housing and Urban Development report.
“Without more homes coming onto the market, housing affordability will continue to be a challenge,” said Lisa Sturtevant, chief economist at Bright MLS, in a statement. The multiple listing service covers the mid-Atlantic region.
The lack of homes on the market has plagued the housing market, keeping home prices elevated as buyers battle it out over a limited number of properties. Millions of new units are needed to close the housing shortage, according to experts.
More newly built homes were completed
The good news for today’s buyers was that the number of completed homes increased by 13.8% in July compared to the prior year.
Finished single-family homes ticked up 3.6%, according to the construction report.
“With more new homes coming on the market, new housing inventory is higher than it was a year ago,” said Odeta Kushi, deputy chief economist at First American Financial, in a statement. The company provides title insurance and settlement services for the real estate industry. “An increase in new-home supply could help ease pricing pressures in this affordability constrained housing market,” Kushi added.
This region saw a spike in new construction
There were some parts of the country experiencing more new construction than others. In the Northeast, housing starts were up 45.1% year-over year in July, according to the report.
Housing starts were down the most in the West, falling 31.9% in July compared to the previous year. They fell 20% in the South and dipped 1.7% in the Midwest.
Homebuilders haven’t been feeling optimistic about the market with home prices and rates remaining high, according to the National Association of Home Builders/Wells Fargo Housing Market Index. It measures homebuilder sentiment.
There could be more new home construction on the way
However, as mortgage rates continue to fall, experts remain optimistic about the future.
The U.S. Federal Reserve is widely expected to cut its own interest rates in September, which should lead mortgage rates to decline.
“With lower mortgage rates on the horizon, buyer interest and builder sentiment should improve in the months ahead,” said Kushi in a statement.
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