‘Housing market poised for sustained slowdown’: New home construction falters, even as builders get more permits

Numbers: Homebuilders in the United States began building homes at a seasonally adjusted annual rate of about 1.64 million in January, down about 4% from the previous month, the US reported Thursday. Census Bureau. Compared to January 2021, however, housing starts increased by almost 1%.

Permits for new homes came in at a seasonally adjusted annual rate of 1.9 million, up nearly 1% from December and the pace seen a year ago.

Economists polled by MarketWatch expected housing starts to come in at a median pace of 1.69 million and building permits to come in at a median pace of 1.75 million.

What happened: New construction activity declined for single-family and multi-family projects nationwide. On a regional basis, there was more variation.

In the Northeast, housing starts rose overall, but single-family home starts fell nearly 26%. Meanwhile, in the West, the total number of housing starts and single-family homes has increased by more than 15%. Housing starts fell overall in the Midwest and South.

The slight increase in building permits is entirely attributable to an increase of approximately 7% in single-family building permits issued. The number of permits for multi-family projects has decreased. Again, there was a high degree of regional variability.

The West saw a marked increase in building permits – both overall and for single-family homes – and the South also saw higher numbers. In the Midwest, the total number of permits issued in January fell from the previous month, despite a slight increase in single-family permits. And in the Northeast, permits were down more than 48%, due to a slowdown in multi-family permits, although single-family permits also fell.

The big picture: January’s decline in housing starts may reflect a number of headwinds for homebuilders. A slight increase in COVID-19 cases due to the omicron variant and inclement weather likely stalled the start of many housing projects. Supply chain issues may also have played a role, as homebuilders are still reporting long delays for needed materials. Indeed, the number of homes completed fell in January, while the number of homes under construction increased, a sign of the impact of these supply backlogs.

The question for homebuilders is whether rising mortgage rates will match a slowdown in demand. The existing home side of the market continues to struggle with low inventory levels, which should force buyers to consider new homes. However, newly built homes are more expensive and soaring interest rates may give buyers pause.

Look forward: “The housing market is expected to experience a sustained slowdown over the coming months,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note. “Current activity is holding up, but that’s normal at this point in the cycle as potential buyers rush to lock in mortgage terms when rates rise. This only advances the activity and leaves a void afterwards.

“Builders can focus on finishing existing projects rather than starting new ones as lack of material availability and rising construction material costs contribute to delays in home construction,” Odeta Kushi said. , deputy chief economist at title insurance company First American Financial Corp. FAF,
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“The number of building permits, a leading indicator, is at its highest since 2006,” said Abbey Omodunbi, senior economist at PNC PNC,
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“An improving labor market, strong demographic trends and healthy consumer balance sheets will be positive for the housing market in 2022, but rising mortgage rates will weaken demand, dampening price growth.”