The housing market continues to suffer as soaring home prices and mortgage rates, combined with low supply, have put the kibosh on potential buyers' hopes.
U.S. housing starts fell 2% in June from May to a seasonally adjusted annual rate of 1.56 million, according to the Census Bureau.
That’s the lowest reading since September and represents a 6.3% slide from June 2021. The jump in home prices and mortgage rates has limited homebuilding.
As for prices, the median existing-home sales price hit $407,600 in May, topping $400,000 for the first time and soaring 14.8% from a year earlier, according to the National Association of Realtors.
As for mortgage rates, the 30-year fixed rate averaged 5.51% as of July 14, up from 2.88% a year ago, according to Freddie Mac.
Affordability: ‘The Main Obstacle’
“With [mortgage] rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
The lofty home prices and mortgage rates are pushing down sales. Existing-home sales fell 3.4% in May from April.
"Home sales have essentially returned to the levels seen in 2019 -- prior to the pandemic -- after two years of gangbuster performance," NAR Chief Economist Lawrence Yun said in a statement.
There was a bright spot in the housing starts report: apartments. Starts for units in buildings with five units or more rose 15% in June from May and were up 16.4% from a year earlier.
"Rising rents are creating an incentive to build more rental units, even in the face of rising financing costs," Jefferies economists Aneta Markowska and Thomas Simons wrote in a commentary cited by Reuters.
Still, they predict that the housing sector as a whole will pull 1.1 percentage points from economic growth in the second quarter, after adding just a bit in the first quarter.
Supply Problem
Lack of supply is another problem confronting potential home buyers. In a survey of members of the National Association of Realtors, 57% cited lack of inventory as the leading reason preventing potential clients from completing transactions last year.
“In the last year, realtors continued to navigate a challenging housing market and said the biggest factor holding back the housing market was tight inventory,” Jessica Lautz, NAR’s vice president of demographics and behavioral insights, said in a statement.
That situation may be improving. For the week ended July 9, active inventory was up 28% from a year ago, according to Realtor.com. Active inventory refers to homes that are being actively marketed for sale.
“Real estate markets remain undersupplied compared with 2019, but they are moving in the right direction,” Realtor.com economists George Ratiu and Sabrina Speianu wrote in commentary accompanying the data.
