US housing starts, builder confidence decline amid high mortgage rates
HOUSTON (ICIS)–US housing starts and builder confidence both fell as high mortgage rates impacted housing affordability, according to the latest data.
Privately owned housing starts were at a seasonally adjusted annual rate of 1,283,000 in August – down 11.3% from July, and down 14.8% year on year from August 2022, the US Census Bureau reported on Tuesday.
After housing starts rebounded in July, August’s starts were well below expectations, with weakness across the board, but more pronounced in the volatile multifamily segment, which fell 26.3% from July, said Kevin Swift, ICIS Senior Economist for Global Chemicals.
Single‐family housing starts in August were at a rate of 941,000, down 4.3% from July.
While last month’s weakness in housing starts may reflect the extreme temperatures across much of the nation, “another leg down in the housing cycle is possible”, the economist said.
Privately owned housing units authorised by building permits were at a seasonally adjusted annual rate of 1,543,000 in August – up 6.9% from July but down 2.7% year on year.
Single‐family authorisations in August were at a rate of 949,000, up 2.0% from July.
The single-family segment is more sensitive to interest rates and housing costs that affect affordability, and it is also more plastics-intensive, Swift said.
Meanwhile, for the month of September, builder confidence in the market for newly built single-family homes fell by five points month on month to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
It was the first time in five months that the HMI dropped below the key break-even measure of 50.
Persistently high mortgage rates above 7% continue to erode builder confidence, the NAHB said.
The National Association of Realtors (NAR) housing affordability index – which factors in family incomes, mortgage rates and the sales price for existing single-family homes – remained at 87.8, “a record low”, Swift noted.
The affordability data indicate that higher median home values in combination with higher mortgage interest rates led to higher qualifying incomes, he said.
The Federal Home Loan Mortgage Corporation (Freddie Mac) reported that the average rate on a 30-year fixed mortgage rate edged up to 7.18% in early September.
Housing starts were 1.55m in 2022 and 1.61m in 2021.
The consensus among economists is that housing starts will fall from 1.55m in 2022 to 1.42m in 2023 and 1.41m in 2024, Swift said.
A recovery could lead to 1.54m in 2025, he said.
“Demographic factors are supporting activity during this cycle”, with significant pent-up demand for housing and a shortage of inventory, he said.
“This may be enough to end the housing recession even if mortgage interest rates remain elevated,” the economist said.
Housing is a key end-use market for chemistry in the form of paints, wire insulation, house-wrap, sealants, roofing materials, resilient flooring, vinyl siding and many other chemical and plastic-related products.
New housing also generates sales of appliances, furniture, carpet, fixtures and window treatments. In total, each start engenders on average over $13,000 worth of chemistry, Swift said.
The housing market is a key consumer of chemicals, driving demand for a wide variety of chemicals, resins and derivative products, such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.
Please also visit the ICIS construction topic page.
Thumbnail photo shows home under construction; photo source: NAHB
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