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By Omar Mohammed
Reporter, Economy & Finance
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New home construction in the U.S. plunged in August to a three-year low, according to data released on Tuesday, as high mortgage rates, increased cost of labor and the price of building homes took a toll on the industry.
Housing starts, which are homes that builders would build, dropped by more than 11 percent to 1.28 million compared to last month and were down nearly 15 percent from the same time in 2022, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development said.
A decrease in multifamily homes construction was a big factor in the decline as they slumped by more than one-quarter. But single-family homes also experienced a downturn, falling by more than 4 percent, pointing to an overall slowdown of the sector.
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"High mortgage rates above 7 percent combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home," Alicia Huey, chairman of the National Association of Home Builders (NAHB), said in a statement.
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The NAHB blamed the decline on ballooning mortgage rates despite high demand for new homes, making the industry pessimistic about the future as rates are unlikely to fall anytime soon.
"Unfortunately, we expect mortgage rates to remain at higher levels as the Federal Reserve is likely to increase rates one more time later this quarter," said Danushka Nanayakkara-Skillington, NAHB's assistant vice president for forecasting and analysis.
The numbers revealed on Tuesday provided little encouragement. The entire nation is feeling the pinch as home building was down across the country. The NAHB pointed out that compared to last year, single-family and multifamily starts were down nearly 23 percent in the Northeast, about 14 percent in the Midwest, nearly 9 percent in the South and about 16.5 percent in the West.
NAHB analysts called for a ramp-up of building in the hope that when rates drop, there will be enough supply to meet the growing interest.
"With high mortgage rates sending buyers to the sidelines, and a nationwide shortage of 1.5 million units, we need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve," Huey said.
The Federal Reserve is meeting this week to decide what to do with interest rates. Central bank policymakers raised interest rates to a two-decade high of 5.25 to 5.5 percent beginning in March 2022 to slow down a historic jump in prices. Those moves led to mortgage rates above 7 percent, the highest in more than 20 years.
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