Record homes under construction raise hopes of rising inventory
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U.S. housing starts may have fallen to a more than a year low in May, but a historic pipeline of homes under construction should ease an inventory crisis as those projects come to fruition.
The number of homes under construction rose to 1.67 million units last month, the highest in government data dating back to 1969. In addition, housing completions rose more than 9% from the previous month for reach the highest level since 2007.
For most of the past two years, builders have been caught between strong buyer demand on the one hand – spurred by ultra-low mortgage rates – and unprecedented supply constraints on the other. These pressures that have limited inventories are showing signs of easing as a recent spike in borrowing costs slows sales, allowing companies to advance on bloated backlogs.
As completions continue to lag the number of units under construction, the upside is a silver lining after an otherwise disappointing housing starts print.
And yet, rising mortgage rates and slowing housing demand cast a shadow over homebuilding inventories, which fell for a fifth straight day and are poised for their worst start to the year on record. .
The S&P Supercomposite Homebuilders Index fell 7.5% on its worst day since June 2020 as investor woes deepened, with mortgage rates rising the most since 1987 and housing starts falling more than expected on last month. Tri Pointe Homes Inc., Century Communities Inc. and Taylor Morrison Home Corp. were among the largest declines, dropping more than 10% each.
“Builders may be pressing the brakes given slowing buyer traffic and the idea that prices need to correct in the hottest markets,” said Anthony Pettinari, an analyst at Citigroup Inc. As the Federal Reserve continues more hawkish measures after the 75 basis point hike on June 15, rebates and outright reductions in house prices could become more common, he added in a report published on June 16.
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