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Key Takeaways
- Housing starts fell in July to the lowest level since May 2020 in the early days of the pandemic.
- High mortgage rates have driven buyers from the market and discouraged builders from beginning construction.
- A recent drop in mortgage rates, with more possibly on the horizon, could change the outlook.
Not since the early days of COVID-19 have homebuilders started so few projects as they did in July.
If homebuilders started projects all year long at the same rate they did in July, they’d begin building 1.24 million homes, down from 1.33 million in June, the Census Bureau said Friday. That was the slowest seasonally adjusted annual rate since May 2020 shortly after the pandemic began.
According to surveys of homebuilders, the outlook for business this summer has been stifled by high mortgage rates, the result of the Federal Reserve’s campaign of interest rate hikes that began in 2022.
With rates hovering near 7% for most of the summer, buyers have struggled to afford monthly payments, and many would-be homeowners have dropped out of the market. Homebuying is especially daunting when comparing today’s high rates with the ultra-low interest offered during the pandemic.
Lower Mortgage Rates Could Provide a Boost
That all could change, however: Mortgage rates dropped significantly earlier this month, and stayed relatively low at 6.49% last week, according to Freddie Mac. With rates having fallen, and the prospect of further declines on the horizon, the outlook for homebuilding is looking up.
“As mortgage rates begin to fall, many potential homebuyers will come off the sidelines and begin to look for new homes,” Joel Berner, senior economist at Realtor.com, said in a press release. “For buyers looking to purchase a home, new construction may be more feasible than they expect after a year of increased new home completions and decreased levels of new home sales.”