U.S. housing cools further with fewer starts, more canceled deals

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After a pandemic-related housing boom forced builders to scramble to make enough homes to satisfy demand, high mortgage rates, elevated inflation and a deteriorating economy are now tempering sales. That’s left builders with a sizable number of unsold properties

The outlook continues to deteriorate. A report Monday showed homebuilder sentiment slid for an eighth-straight month in August, marking the worst stretch since 2007. While Home Depot Inc. reported better-than-expected earnings last quarter, it said customer transactions continue to fall.

Residential starts dropped by nearly 10% last month to a 1.45 million annualized rate from a revised 1.6 million pace in June, the government data showed. Applications to build, a proxy for future construction, declined 1.3% to 1.67 million.

Prices for commodities like lumber have eased in recent months, though builders continue to struggle to fill open positions, especially more skilled roles. Two-thirds of construction firms reported few or no qualified applicants in a July survey of small businesses. 

More housing deals are also starting to fall through. Roughly 63,000 agreements to purchase homes were canceled in July, equal to about 16% of properties that went into contract that month, according to Redfin. While deals fall through for a range of reasons in normal times, the percentage of cancellations has been ticking up as sales slow down and borrowing costs rise.

The government’s report showed single-family housing starts decreased 10.1% to an annualized 916,000 rate, the slowest since June 2020. Permits for one-family dwellings dropped 4.3% to a two-year low. Meanwhile, the construction of multifamily dwellings fell to 530,000 in July.

Existing-home sales for July will be released Thursday, followed by new-home purchase data next week.

On that front, in Chicago, the slowdown is not as sharp as elsewhere, and, in fact, there are strong signals that the market might be accelerating again.

In the week that ended Aug. 15, the number of homes that went under contract was down 8% from the corresponding week a year ago, according to weekly data released by Midwest Real Estate Data. In the previous five weeks, new contracts were down between 12 and 16% each week.

Closed sales also narrowed the gap in the week ended Aug. 15. There were 25% fewer homes sold in the week than the same week last year, according to MRED’s data. In the previous five weeks, the figure had been down between 30 and 34%.

Far fewer people are canceling purchase contracts than in fizzier cities.

Dennis Rodkin contributed to this story.

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