Construction on new homes snaps uptrend, hitting key source of new supply

• Construction on new single-family homes fell 7% to a seasonally adjusted annual rate of 935,000 units.
• This is a turnaround from May's surprising 18.7% surge.
• Multifamily housing starts fell 11.6% to 482,000 units, the lowest since December.

Housing starts fell in June as higher costs and mortgage rates slowed activity in a key area of the market that has been adding supply.

Construction on new single-family homes fell 7% to a seasonally adjusted annual rate of 935,000 units, breaking a four-month streak of gains and following an 18.7% jump in May.

Meanwhile, multifamily housing starts dropped to 11.6% to 482,000 units, hitting the lowest rate since December.

The decline is bad news for prospective buyers in the housing market, which increasingly relies on construction of new homes for inventory while the existing-home market is frozen.

In fact, new construction made up almost a third of active listings in May, while pending sales of existing homes fell 2.7% month to month. 

That's as monetary tightening over the past year and a half has sent mortgage rates soaring, keeping homeowners with lower rates off the market. 

But a drop in US bond yields should offer some relief for mortgage rates and the housing market.

"While builders have slowed construction activity as interest rates have approached 7%, we anticipate mortgage rates will stabilize later this year in anticipation of the end of Federal Reserve's tightening cycle," said Danushka Nanayakkara-Skillington, the National Association of Home Builders' assistant vice president for forecasting and analysis.

"In turn, this could bring home buyers back to the market as affordability conditions improve. And in another sign of cautious builder optimism, single-family permits registered their highest pace since June 2022."