US housing construction cycle shows cracks as starts and permits decline

US housing starts and permits have continued their downward trend, with August data indicating further declines. Housing starts were at a seasonally adjusted annual rate of 1,275,000, a 2.6% decrease from July, while single-family starts saw a 7.6% increase to 918,000. Building permits also fell, down 2.7% from July to a rate of 1,394,000, with single-family authorizations declining 1.8% to 878,000.

These figures reflect a prolonged slowdown in the construction sector, exacerbated by elevated mortgage rates. Historically, builders have used profit margins to offer sub-6% mortgage rates to stimulate sales, a strategy that has helped prevent a sharp crash seen in previous cycles. However, with corporate profits declining and rates remaining high, this approach is becoming increasingly challenging for builders.

While the number of completed but unsold homes has been decreasing from its peak, the sustainability of the housing construction cycle remains in question. Builders' confidence has reportedly worsened across all metrics as mortgage rates have climbed in recent months. The author suggests monitoring new home sales and purchase applications, noting that a break below 2022 lows could signal further construction slowdowns and impact employment.