New U.S. home-building activity fell to a nine-month low in June and permits for new construction projects slipped as well, the latest indication of a cooling housing market as surging mortgage rates reduce affordability.
Housing starts 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 a rate of 1.591 million units from the previously reported 1.549 million units.
Economists polled by Reuters had forecast starts would come in at a rate of 1.580 million units. Permits for future homebuilding fell 0.6% to a rate of 1.685 million units.
The housing market is very sensitive to interest rates, and, with the Federal Reserve lifting rates aggressively to blunt inflation running at its highest in four decades, the market has softened notably this year. The average contract rate on a 30-year fixed-rate mortgage climbed to nearly 6% in June, up from about 3.3% at the start of the year, which has put home purchases out of reach for a growing number of prospective buyers, particularly first-time purchasers.
While it is unclear how much higher mortgage rates will climb, it’s almost certain they will remain high for some time with the Fed set to raise interest rates again at its meeting next week and more hikes to come through the end of the year.
An Oxford Economics index out last week showed homes were the least affordable in the first quarter of 2022 at any time since the 2007-2009 financial crisis, and it forecast that picture would worsen through the rest of this year.
Meanwhile, a survey out on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Index suffering its second-largest drop on record in July, with a gauge of prospective buyer traffic falling below the break-even level of 50 for a second straight month.
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