New U.S. home construction slipped in June to the lowest level since September 2021, underscoring a housing market slowdown.
Housing starts fell 2 percent last month to a seasonally adjusted annual rate of 1.56 million units, according to Commerce Department data released Tuesday. The decrease was driven by an 8.1 percent decline in single-family housing construction. Residential construction permits for future projects fell 0.6 percent.
Higher mortgage rates stemming from the Federal Reserve’s interest rate hikes has cooled down demand for houses as first-time homebuyers struggle with sky-high prices. The average 30-year rate was 5.51 percent last week, up from around 3.3 percent at the start of the year, according to Freddie Mac.
While weaker demand could bring down housing prices in the near term, an extended slowdown in construction could send prices soaring, as the U.S. faces a severe shortage of housing supply.
An average home in the U.S. sells for more than $430,000, up 11.2 percent from last year, according to real estate brokerage Redfin. The lack of affordable homes is prompting more Americans to remain in apartments, driving up rents to record levels.
Home builders are warning lawmakers that higher interest rates, supply chain snags and worker shortages make it difficult for them to turn a profit on lower-priced homes. The National Association of Home Builders (NAHB) said Monday that homebuilder confidence declined to its lowest level since May 2020.
“Affordability is the greatest challenge facing the housing market,” NAHB chief economist Robert Dietz said in a statement. “Significant segments of the home buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing.”