U.S. new home construction activity fell to a nine -month low in June and permits for new construction projects also declined. This leads to indications that the housing market is starting to slow as soaring mortgage rates reduce affordability.
New home construction fell 2% to a seasonally adjusted annual rate of 1.559 million units last month, the lowest level since September 2021, the Commerce Department said on Tuesday. Data for May was revised higher to 1.591 million units from 1.549 million units previously reported.
Economists surveyed by Reuters predict new home construction will come at a rate of 1.580 million units. Permits for future home construction fell 0.6% to 1,685 million units.
The housing market is sensitive to interest rates, and, with the Federal Reserve raising rates aggressively to tackle growing inflation is at its highest level in four decades. The average contract rate for a 30-year fixed-rate mortgage rose to nearly 6% in June, up from about 3.3% at the beginning of the year, leaving home purchases more burdened.
While it’s unclear how much mortgage rates will rise, they are expected to rise higher for some time with the Fed raising interest rates again at its meeting next week and more hikes set to take place by the end of the year.
The Oxford Economics index that came out last week showed house prices were the most affordable in the first quarter of 2022 at any time since the 2007-2009 financial crisis and it is expected to get worse throughout the year.
Meanwhile, a survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Index experienced the second-largest decline on record in July with the number of buyers falling below breakeven for two consecutive months.
