U.S. housing supply continues to fall amid rising mortgage rates
REAL ECONOMY BLOG | July 19, 2022
Authored by RSM US LLP
Housing starts and permits in the United States continued to fall in June amid higher interest rates and sharp declines in demand because of elevated housing prices, the Census Bureau reported on Tuesday. There were 1.56 million new housing starts in June on an annualized basis, a 2.0% decline from May and the lowest level since last September. The number remained below our estimate of the 1.7 million new starts that are needed every month to meet long-run demand. May’s reading was revised upwardly to 1.59 million.
Still, the decline in housing supply in June lowered our forecast for gross domestic product in the second quarter by 1.5 basis points to 0.19% on an annualized quarter-over-quarter rate. After a six-month period of averaging above 1.7 million from November to April, housing starts have slowed significantly since May as a steep rise in mortgage rates has deterred buyers. Traffic of prospective buyers has dropped by a sharp 50% since the start of the year, according to recent data from the National Association of Home Builders. Building permits—a proxy for future starts—also declined in June to 1.685 million from 1.695 million, mostly driven by an 8% drop in single-family homes. The number of completions dropped by 4.6% in June after rising by 6.9% in the prior month. Facing a pullback in demand and high input costs, builders are reconsidering adding more supply of new homes to protect their margins from a potential decline in prices. Anecdotal evidence has been showing a slower price growth or even declines in prices in some markets where inventories are high. This further complicates the current housing shortage that the United States has been facing since the housing market crash in 2008. High prices and low supply will continue to keep millions of Americans from being able to afford a home. We expect the deficit to approach 4 million by the end of the year if housing starts continue to decline. We believe that government agencies at the national and local level need to take a more active role to overcome the current housing deficit, adopting policies including more flexible zoning restrictions, expanded housing tax credits and regulations that broaden affordability.
The decline in the housing supply will continue until the end of the year as the Federal Reserve raises interest rates to combat inflation and as economic activity slows across the market.
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Tuan Nguyen and originally appeared on 2022-07-19.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.