U.S. Housing Market’s Mixed Signals: Multi-Family Surge Amid Single-Family Struggles

In June, the U.S. housing market experienced a notable rebound in new home construction, primarily driven by multi-family residential projects. However, the single-family housing segment remains sluggish, reflecting ongoing inventory challenges and the financial strain on prospective homebuyers.

According to recently released government data, new housing starts saw a seasonally adjusted annual increase of 4.6%, reaching 1.32 million units. This uptick reverses the nearly 10% drop observed in May, surpassing the economists’ median forecast of 1.30 million units.

Despite the heightened activity among apartment builders, the overall new housing market remains subdued, suggesting that developers are easing their investment pace to manage an inventory surge to its highest level in 17 years. Builders also face competitive pressure from an increase in available secondhand homes, driven by a mortgage rate nearing 7% that has prompted more homeowners to sell.

In response to market pressures, builders have adopted price reduction strategies, although these tactics may diminish their enthusiasm for further developments. Data indicate that the annualized rate for single-family home starts fell to 883,000 units in June, marking one of the lowest levels since the beginning of 2023. Meanwhile, multi-family construction rebounded by 30% following a significant monthly drop.

The data closing the second quarter signals that housing investment might slightly drag on GDP growth. The Atlanta Federal Reserve's GDPNow model predicted that the impact on economic growth from this sector could reach its highest since late 2022.

Furthermore, a decline in single-family building permits for the fourth consecutive month hints at future construction slowdowns, reaching a multi-year low. The statistics show a continuous three-year decline in the number of single-family homes under construction.

Regionally, single-family housing projects have contracted nationwide, with the most significant decreases occurring in the western and southern U.S., the country’s main construction areas.

It is important to note that new housing start data displays a high degree of volatility. The government report suggests a 90% confidence interval for these figures, ranging from a 6% decrease to a 15.2% increase. The National Association of Realtors is set to release the June existing home sales report, providing updated insights into the second-hand housing market.