The Census Bureau and Department of Housing and Urban Development reported on Tuesday that new construction declined more than expected, continuing a series of poor performances as mortgage rates have increased and the economy softened.
Econ Data: More Scrooge Than Building permits fell 11.2% in October to an annual rate of 1.342 million, while construction starts dropped 0.5% to 1.427 million annually. Receipts have fallen 22.4% compared to a year earlier, while openings are 16.4% lower than the level of November 2021.
Mortgage rates are rising rapidly in the housing industry. The rate for a 30-year loan with a fixed rate has risen from 3.1% to 6%, a double increase. Builders are encouraged by a recent drop in mortgage rates, which have been at 7% for a while.
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Lisa Sturtevant is the chief economist of MLS Bright. She said that single-family homebuilders are hesitant at this time, but signs are emerging that they are preparing for a housing demand rebound in 2023. “New housing begins were down again this November. This is the seventh consecutive month that new starts have been lower than they were a year earlier. The new residential construction activity has also slowed down in comparison to October.”
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She added that builders are offering incentives for quick moves and are reducing prices to clear excess inventory. However, she said they aren’t finding many buyers who are ready to move in right now. Home shoppers are mostly on the sidelines, partly due to the usual holiday slowdown. But buyers are also watching to see if the mortgage rates will fall further.
The National Association of Home Builders announced on Monday that their monthly index of builder confidence had fallen for the 12th consecutive month in December. However, there were some positive expectations for the coming months.
Odeta Kush, deputy chief economist of First American Title Insurance Company, said that a slowdown in construction was concerning as the housing market is still under-built relative to Demand. The short-term contraction in affordability leads to a reduction in Demand from potential purchasers, but in the long term, new construction is necessary in order to meet shelter demand.
Odeta Kush, First American’s deputy chief economist, said that builders have benefited from a lack of resale stock and their ability to offer incentives like mortgage rate buydowns in order to get buyers to come off the fence. In this way, builders have a competitive advantage over resale markets.
Kelly Mangold, RCLCO Real Estate Consulting, added: “The increased number of starts in this month indicates that builders anticipate positive conditions for the next year once these homes are available to buyers.”
Bright MLS’s Chief Economist Lisa Sturtevant commented on Wednesday’s report. “While new construction won’t immediately solve the housing supply problem, the recovery of the homebuilding industry is important for meeting the country’s housing requirements and easing affordability challenges for potential home buyers.”
Kelly Mangold of RCLCO Real Estate Consulting said, “Dem, and from millennials for homes is high. However, as boomers enter their retirement years, they are often moving and have significant home equity.”
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The report was released a day following the release of the National Association of Home Builders’ monthly survey, which showed that confidence among builders increased by 1 point in June. This is the seventh consecutive rise and the highest level seen since last year.
The lack of homes on the market is a benefit to new home construction since homeowners who have low mortgage rates choose not to sell their properties.
The lack of resale stock means that prospective homebuyers who are not priced out of the marketplace continue to seek new construction said NAHB chairman Alicia Huey. Huey is a custom homebuilder from Birmingham, Alabama. Builders are also concerned about rising mortgage rates, which have reached 7%, and they continue to struggle with supply-side issues, such as the scarcity of transformer equipment for electrical power and concerns over lot availability.