Despite a month-over-month drop in multifamily starts in July, the apartment industry appears on stable ground as starts are up 17.4% compared to last year, buoyed by solid demand for rental units. Conversely, single-family construction is looking weaker as homebuilders slow the pace of new starts. The July rate for single-family starts fell 10.1% month-over-month and were 18.5% lower when compared to last year.
Supplying more evidence that home builder confidence is waning, the National Home Builders Confidence Index released Monday fell 6 points to a reading of 49, which reflects an overall pessimistic outlook by builders for the single-family sector. There is no doubt that rising interest rates are responsible for a decline in foot traffic in new home communities.
Until the Fed reverses course, there doesn’t seem to be too much relief in the cards for single-family home builders as it appears a majority of would-be homebuyers are priced out of the market and will continue to rent until borrowing cost decrease or home prices fall enough to offset those increased costs. However, it remains unlikely home prices will fall enough to offset increased borrowing cost as many homeowners are locked in low interest rates and can wait out an economic slowdown.