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Housing starts saw a significant drop in June following a month of banner increases in May, when new home construction posted its largest uptick since 2016, the U.S. Census Bureau reported on Wednesday.

Single-family housing starts were at a rate of 935,000, 7 percent below the revised May figure of 1,005,000, failing to meet economists’ expectations. Meanwhile, privately owned housing starts were down 8 percent from May to a seasonally adjusted annual rate of 1,434,000.  That figure was also down 8.1 percent from the June 2022 rate.

The decline in starts came as builder confidence remained high, however, due to a general lack of inventory and need for more new homes.

Kelly Mangold

“Despite the decline, there are many factors that point towards the housing market moving into recovery as builder sentiment continues to improve,” RCLCO’s Kelly Mangold said in a statement. “Home inventory has dropped significantly which has bolstered the new home market, as many existing homeowners hunker down with their sub-3.5 percent mortgage rates.”

Indeed, builder confidence rose five points in June to 55, the National Association for Home Builders (NAHB) reported last month, marking its sixth straight month of increases in confidence and its highest rate since July 2022.

“Builders are benefitting from the lack of resale inventory, but higher mortgage rates pose a threat,” First American Deputy Chief Economist Odeta Kushi said in a statement emailed to Inman. “Reduced affordability alongside ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans could throttle builder momentum.”

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