The US housing market remains stuck in a kind of limbo.
The pace of new construction tumbled more than 14% in March to the slowest since August, data released on Tuesday showed.
To call the update a disappointment would be an understatement, although I should note that this series is of course quite volatile. Caveats aside, the headline starts print was below every estimate. Single-family starts fell the most since a 15% decline in April of 2021.
As the figure shows, multifamily wasn’t any better. In fact, it was worse on one score. The rate of multifamily construction in March was the most subdued since COVID lockdowns were in style.
Some of the letdown was just “give back” from February (and, again, this is an inherently unpredictable series), but in no sense was Tuesday’s release good news. It came on the heels of a somewhat subdued NAHB update, which found builder sentiment unchanged in April.
The good news is that builders are still leaning in the direction of optimism: 50’s the demarcation line in that regard and April’s NAHB print was 51.
The bad news is just that unless and until rates come off the boil, it’s unlikely that builders will turn overtly constructive (no pun intended).
The NAHB release described buyers as “frustrated” and “back on the fence waiting for interest rates to fall.”
If recent US macro releases — including successive overshoots on payrolls, CPI and retail sales — are any indication, those sidelined buyers are going to be waiting a while longer. Mortgage rates are still loitering near 7% and they’re very likely to rise in the days ahead given the selloff in Treasurys.
Notably, Tuesday’s government data showed single-family permits fell in March after a nonstop run of monthly gains off the lows in late-2022/early-2023.
The overall pace of permits was 1.46 million in March, the slowest since July.
“The potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed,” NAHB Chief Economist Robert Dietz said this week.
“[A] hotter-than-expected inflation report will likely keep mortgage rates elevated for the foreseeable future,” Redfin’s Dana Anderson sighed, while noting that the median monthly US housing payment hit another all-time high near $2,750 during the four weeks to April 7. That marked a double-digit increase from the same period a year ago.
Dietz tried to stay upbeat. “We still anticipate the Fed will announce future rate cuts later this year,” he ventured, adding that in his view, “mortgage rates will moderate in the second half.”
I live in a developing neighborhood and until recently the market had been absorbing all the units builders could supply. I checked yesterday and there are a dozen built units waiting to be sold. I have also noticed the work crews getting smaller indicating builders are slowing down the rate of production.
Maybe buyers are starting to feel more strapped by higher rates. While not impacted by mortgage rates, I feel much more financially constrained than I did a year ago. Insurance premiums have gone up, energy costs have gone up, grocery bills are higher. Life feels very expensive in a way it didn’t even 12 months ago.
Interesting comment. It’s only temporary. Sales will rise again. Don’t worry about it unless it stays that way into the autumn.
My concern now is that the market seems to be less dynamic overall and that it may continue this way for a long spell with higher rates. Looking forward to a more loose and relaxed market and lowering rates.
But in the end, isn’t this required in order for rates to go back down ? That a slow down happens either strongly enough or long enough to reduce demand in all “non-necessary” things and hence, lower inflation ? Though yes, shrinking supply of new homes will favor inflation. But then again, don’t builders slow construction because of slowing demand ? And another then again is that they may slow construction because their funds are better invested in treasuries in this rate environment with lower risk. Well then, I don’t have really an idea of how this is unfolding.