U.S. Housing Starts Drop to Three-Year Low Amid High Mortgage Rates and Limited Credit Availability

U.S. housing starts hit a three-year low in August 2023 as high mortgage rates and U.S. treasury yields have hindered demand in recent months. Furthermore, builders are experiencing more difficulty accessing affordable financing, with lenders remaining cautious and continuing to tighten credit standards. The Commerce Department also reported that homebuilders’ confidence hit a five-month low in September 2023. According to economist Daniel Vielhaber, “August’s home construction data appear to be showing some cracks in the armor of what has been one of the few strong indicators in the housing market recently… Still, it’s important to note that there could be a noise component here as much of the sharp decline in starts came from the multifamily sector, which is notoriously volatile.” Starts for housing projects with five or more units saw the largest monthly decrease of over 26%, while single-family starts were down around 4%.

Despite the continued pain caused by elevated mortgage rates, permits for future homebuilding jumped to their highest levels since October 2022, indicating a potential rebound in the market. As noted by Jeffrey Roach, Chief Economist at LTL Financial, “The undersupply of single-family homes on the market could provide growth opportunities for home builders, especially the companies building entry-level homes for the large cohort of millennials looking to buy.”