Washington
CNN
—
Home building pulled back in November, as buyers faced spiking mortgage rates topping 7% that make homes increasingly unaffordable. Rates fell slightly through the month, but are still double what they were a year ago, continuing to put pressure on new home purchases.
November housing starts, a measure of new home construction, dropped 0.5% from October, and were down 16.4% from a year ago, according to the US Census Bureau. After a big drop earlier this spring, housing starts had been holding relatively steady up until July when rising mortgage rates persuaded more prospective buyers to sit on the sidelines.
Housing starts bounced back a bit in August while mortgage rates briefly retreated. But since that time, mortgage rates have been on the rise, hitting a 20-year high in October.
Building permits, which track the number of new housing units granted permits, also fell in November, down 11.2% from the revised October rate, and were down 22.4% from a year ago.
“The home building market weakened further in November and it’s tough to forecast the bottom given relatively high mortgage rates,” said Robert Frick, corporate economist at Navy Federal Credit Union.
One number that beat estimates was housing starts, he said, but those were weighted to apartments, not single-family homes.
“Potential homebuyers should see some relief next year in the form of lower mortgage rates and possibly lower home prices,” said Frick.
Separately, a survey released Monday found home builder confidence fell in December, the 12th straight month of declines. The trend reflected a weakened housing market as elevated mortgage rates, ongoing supply chain problems and high home prices continued to make homes less affordable for buyers. The National Association of Home Builders/Wells Fargo Housing Market Index is meant to gauge market conditions and looks at current sales, buyer traffic and the outlook for sales over the next six months.
It was, however, the smallest drop in the index in the past six months, suggesting a bottom may be near.
While two of those measures – current single-family home sales and traffic of prospective buyers—fell, the measure of future sales expectations increased for the first time since April, aided in part by a drop in the average 30-year fixed rate mortgage in recent weeks.
“NAHB is expecting weaker housing conditions to persist in 2023, and forecasts a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” Robert Dietz, NAHB Chief Economist.
Even if demand to buy a new home is lower now, said Odeta Kushi, deputy chief economist at First American, if building does not keep moving there will continue to be a housing shortage when mortgage rates stabilize.
“A slowdown in new construction is concerning because the housing market remains underbuilt relative to the long term demand,” she said.
Existing homes have typically made up approximately 90% of total inventory and are in low supply as existing homeowners stay put, Kushi said.
“With many existing homeowners locked-in to historically low, sub-3% mortgage rates, few have a financial incentive to sell their home only to purchase a new one with a much higher mortgage rate,” said Kushi. “A lack of existing-home inventory means that new home construction will be more essential in bridging the supply gap.”
The for-sale home market continues to feel the impact of rising mortgage rates, which has pushed many first-time buyers to the sidelines because their buying power has been dramatically diminished over the past year, said Kelly Mangold of RCLCO Real Estate Consulting.
Still, she said, there are signs of optimism as the Fed announced last week a rate increase smaller than the 75 basis point jumps and inflation is showing signs of waning. “Motivated buyers or those who are not financing a large portion of their home, such as a downsizing empty-nester, may be in a position to find a good deal as builders are beginning to adjust their pricing to move inventory.”
Incentives are being offered by 62% of builders, according to the NAHB, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions. Although only 35% of builders reduced home prices this month, with the typical price dropping 8%.
“With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” said Jerry Konter, NAHB Chairman.
