The construction of new homes experienced an 11.3% decrease in August, which fell short of expectations from Wall Street analysts. Builders redirected their focus towards completing existing projects rather than initiating new ones.
This decline in construction activity was primarily attributed to the prevailing high mortgage rates, which remained above 7%. As a result, the demand for home purchases experienced a dampening effect. The construction level observed in August had previously been recorded in June 2020.
According to the government’s latest data released on Tuesday, the annual pace of housing starts dropped to 1.28 million from the previous month’s figure of 1.45 million. This annual pace indicates the estimated number of houses that would be constructed over an entire year if the construction rate remains consistent with that of August. It is important to note that these numbers have been adjusted for seasonal variations.
Both single-family and multi-family construction exhibited lower activity levels in August.
New homes have dominated the housing market, but persistent high mortgage rates are causing concern among home builders. In response to anticipated decline in demand, builders have begun implementing price cuts in September to stimulate buyer interest. These findings were revealed in a survey conducted by the National Association of Home Builders.
However, there is a glimmer of hope for the future of construction as building permits, which serve as an indicator for future construction activities, experienced a 6.9% increase, reaching a rate of 1.54 million. This marks the highest level recorded since October 2022.
Market Reaction
Early Tuesday, U.S. stocks, including DJIA and SPX, were expected to open on a positive note. Meanwhile, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) surpassed 4.3%.
