New housing construction fell in September as sky-high mortgage rates weakened demand.
Housing starts decreased 8.1 percent to a seasonally adjusted annual rate of 1.44 million units last month, while single-family starts declined by 4.7 percent, according to Commerce Department data released on Wednesday.
Overall building permits increased 1.4 percent to a 1.56 million annualized rate.
Rising mortgage rates stemming from the Federal Reserve’s persistent rate hikes to target growing inflation have pushed buyers — especially first-time buyers — out of the once hot market.
The 30-year fixed mortgage rate jumped to 6.81 percent last week, marking a 20-year high, according to data from the Mortgage Bankers Association.
“Higher interest rates are hurting the ability of buyers to purchase a new home, particularly at the entry-level end of the market,” Jerry Konter, chairman of the National Association of Home Builders (NAHB), said in a statement.
“Higher rates also harm the supply-side of the market by increasing the cost of construction and development loans,” Konter added.
Meanwhile, separate data from NAHB shows that homebuilder sentiment and homebuyer traffic continued to decline last month, in another indication of a cooling market.
Builder sentiment fell for the 10th straight month, while prospective homebuyer traffic dropped to its lowest point since 2012 — with the exception of the onset of the coronavirus pandemic in 2020.
Despite slowly rising inventory after a two-year housing boom, economists say inventory remains low.
“The inventory of homes listed for sale has gone up a bit due to lengthening days-on-market, though well below pre-pandemic inventory conditions and still near historic lows,” Lawrence Yun, chief economist at the National Association of Realtors, said in an analysis on Wednesday.
“Meanwhile, new listings coming onto the market are actually lower this year compared to last year due to the interest rate lock effect, whereby homeowners are unwilling to trade away their 3% mortgage rate,” Yun said.