Good news for the housing market, the new home building is starting to pick back up but builders are still frustrated. This fall we have seen an uptick in new home building even with the slower demand from new home buyers. Builder sentiment is still down though due to things like the high cost of building materials.

According to the US Census Bureau, August home starts for new home construction rose 12.2% from the previous month. This is still 1% down from August 2021 just a year ago. The home starts are still trying to catch up this fall from the big drop that was seen this spring. The housing starts have been holding steady up until about a month ago when they began to increase.

The increase is a plus for the housing market due to the low inventory that has disrupted the market for the past two years. The rise in home prices and bidding wars are part of the direct outcome of this shortage. ” The latest month’s increase is implying that builders still see profit opportunities even as they concede on prices,” said Lawrence Yun, chief economist at the National Association of Realtors.

Multi-family projects have seen the biggest gain which jumped 30% from July, single-family homes only rose 3.4% from a month ago. Even with these increases, builders are still shy about being too optimistic of what the future holds. Building permits dropped 10% from the beginning of the summer and were down 14.4% from the same time last year. Surveys are still showing that builder confidence is still falling.

This fall is partly to be blamed on higher mortgage rates, supply chain problems and high home prices. “Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said Jerry Konter, NAHB Chairman.

The National Association of Home Builders reports show that builder sentiment has gone down every month since 2022 and shows no signs of rising anytime soon. “Builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped push mortgage rates above 6% last week, the highest level since 2008,” according to Robert Dietz, NAHB Chief Economist.

“In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buy downs, free amenities and price reductions,” said Dietz.

This is still not pushing home buyers back into the market. The study also shows that the cycle of homeowners moving up from a starter home is stalling due to the high prices and rising mortgage rates. First-time home buyers are also stalling and choosing to rent instead.

“Many potential ‘move-up’ buyers who would be likely candidates for high-priced new construction homes may also be weighing the benefits of remaining in their current home, where they likely have a mortgage rate less than half of today’s going rate – all factors that are contributing to a decline in housing mobility,’ said Kelly Mangold of RCLCO Real Estate Consulting.

The huge increase in multi-family buildings is due to the record high rents around the country. “Apartment demand has been strong, with rents rising at a historically high pace. Those consumers unable to qualify for a mortgage at higher interest rates are renewing their rental leases. Job creation is also boosting the rental demand,” stated Yun.

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