New home construction fell again in October to its lowest level in more than two years as higher mortgage rates continue to hurt homebuilders’ sentiment – leading experts to warn that a recovery in the coming year still looks unlikely and that a lack of construction could lead to another housing shortage.
Home starts, or new homes that have started construction, fell 9% in October from a year ago, while building permits fell 10% to 1.5 million, the Census Bureau reported Thursday.
While the housing market is not as weak as expected, housing construction began last month and permits continued to “fall rapidly” last month, UBS economist Samuel Coffin said in a note to clients following the report. a milder than expected impact on construction in the South.
Last month’s drop in project start-ups has seen construction fall 21% from a peak in April, says Pantheon Macro chief economist Ian Shepherdson, noting that “most of the decline is over, but the recovery is still a long way off”. is gone” and that construction may not win until the end of next year.
The number of homes on the market has grown amid the slump in demand, but in comments emailed Lawrence Yun, chief economist for the National Association of Realtors, said new listings are lower compared to the same period a year ago and that the housing stock in general remains near “historic lows”.
“That means once the gate opens a bit for homebuyers, we could face a housing shortage again,” says Yun, adding that mortgage rates are already falling from last month’s peak levels – to 6.9% week from a peak of nearly 7.2% – helping more homebuyers qualify for a mortgage and potentially boosting demand.
Given the relatively small number of homes under construction, TBEN’s Kate Wood says builders could struggle to meet demand if interest rates “drop significantly,” fueling a shortage and potentially pushing up house prices that are already at record highs.
This year’s Federal Reserve rate hikes kicked off a powerful turnaround in the housing market, which was already reeling from supply shortages that hampered construction and made homes more expensive. Higher mortgage rates have added an average of $800 to the monthly payment for new mortgages since last year, and demand has declined as a result, with new home sales falling nearly 30% this year. The new construction data comes a day after information shows that builders’ confidence collapsed for an 11th straight month in November as rising interest rates continued to weaken housing demand – reaching the second-worst level since June 2012, after just the start of the pandemic in early 2020 .
What to watch out for
The National Association of Realtors will report Friday’s existing home sales for the past month. Economists estimate that about 4.4 million homes have been sold on an annual basis, up from 6.2 million in October 2021.
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