According to data released on Thursday by the Census Bureau and the Department of Housing and Urban Administration, new home starts and activity permits both decreased in October, continuing a decreasing trend in the rate of new construction.
Starting in September, starts were down 4.2%, while permits were down 2.4%. They are, respectively, 8.8% and 10.1% lower than they were a year ago.
The research provides proof that the Federal Reserve’s ongoing interest rate rises and the ensuing jump in mortgage rates are having an impact on the housing market.
The National Association of Homebuilders announced its confidence index for November on Wednesday, which revealed the 11th straight monthly decline. With the exception of the decrease during the beginning of the coronavirus pandemic, the index is now at its lowest position since 2012.
The market for new houses has been considerably undermined by higher mortgage rates, which coincide with a decline in buyer activity, according to NAHB Chairman Jerry Konter, a developer and homebuilder from Savannah, Georgia.
Current sales circumstances decreased by six points to 39 in November, sales forecasts for the subsequent six months down by four points to 31, and traffic from potential purchasers decreased by five points to 20.
The NAHB notes that as a consequence, an increasing proportion of builders are turning to incentives, and more than a third are cutting prices.
According to David Auerbach, managing director at Armada ETF Advisors, “the news bodes poorly for homebuilders yet remains upbeat for existing rental players such as apartments and single family rentals as this means tenants are more likely to continue renting into the foreseeable future unless mortgage rates adjust accordingly.” This may be a sign that house ownership rates will decline from their current levels, which would be good news for the rental market.
Despite the pessimism, there are some encouraging signs, particularly for the overall economy and the Federal Reserve’s initiative to combat inflation.
According to Odeta Kushi, deputy chief economist at title insurance First American, “if builders pull back on beginning new projects, they will have more chance to bring the backlog of houses in their pipelines that are currently under construction to market.” The long-term pricing pressures in the housing market should be reduced by the increase of inventory.
And on Thursday, Realtor.com reported that in September, apartment rentals increased at their slowest annual rate in 18 months, at 4.7%.
In the top 50 U.S. metro areas, the median rent in October was $1,734, down $25 from the previous month and $47 from its high in July. A significant factor in the consumer price index is housing expenses.
Finding inexpensive housing continues to be a top issue for families due to rising prices and economic worries. The double-digit speed of rent rise that we saw during the height of the epidemic is now beginning to ease, according to our data, said Danielle Hale, chief economist at Realtor.com.
Hale said, “While it’s still too early to conclude that rent prices are officially on a downward track, the data indicates a positive return toward regular seasonal slowdowns and implies that the sky-high price hikes of the last few years may be behind us.
Also on Thursday, the number of Americans who first applied for unemployment benefits dropped by 4,000 from the preceding week’s revised 226,000 to 222,000. Meanwhile, the four-week moving average increased by 2,000 to 221,000, up from the previous session.