as Inflation and Rising Interest Rates Weigh on Construction Activity

• Housing starts in June edged down 2.0% to 1.559 million annualized units, the lowest level since September 2021.
• Housing permits fell by a small 0.6% in June to 1.685 million annualized units, also the lowest level since September 2021.
• Single-family starts and permits fell to two-year lows in June.
• House price growth will moderate in 2022 and 2023.

Housing starts edged down 2.0% in June to 1.559 million annualized units, worse than consensus expectations for a 2.0% increase to 1.580 million annualized units, according to data from the U.S. Census Bureau. Starts in May were revised slightly higher to 1.591 million from 1.549 million. Single-family starts fell 8.1% while multi-family starts rose 10.3%. 

Residential construction permits were down 0.6% to 1.685 million in June. Single-family permits fell 8.0% to 967,000. Multi-family permits rose 11.5% to 718,000. Building completions fell 4.6% in June but were up 4.6% from June 2021. Single-family starts and permits fell to two-year lows in June.

Construction activity slowed in June amid rising mortgage rates, inflation, and labor shortages. The report showed that the number of homes approved for construction, but yet to be started, increased slightly by just over 1.0% to 285,000 in June, just below the record-high 290,000 reached in March 2022. This suggests that construction activity should remain solid through 2022, contributing to economic growth.

Builder confidence continues to decline, however; the NAHB Market Index collapsed to 55 in July, an over two-year low. Housing demand will soften over the next couple of years as the FOMC removes monetary policy accommodation and mortgage rates increase. The housing market remains undersupplied; there is a significant housing supply shortfall that will not be restored in the near term. House price growth will moderate in 2022 and 2023 as the demand-supply imbalance improves, but it will remain a seller’s market for some time.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.