In figures: The number of housing starts by builders fell 5.2 percent last month, the Census Bureau said, to 1.22 million. It’s down 7.4% year over year and close to post-pandemic lows.
- Single-family home starts fell 4.6% to their lowest level since March 2023.
- Pending home sales fell 7.3% last month, the National Association of Realtors reported Tuesday morning, the lowest since data was tracked going back to 2001.
- Homebuilder confidence fell this month to its lowest level since 2012, the National Association of Home Builders said Monday.
State of play: The average 30-year fixed mortgage rate was 7.4% at the start of the month, Freddie Mac said in its latest weekly statement. The rate was briefly higher than in 2023, but has not been consistently above that level since fall 2000.
- This has kept home buyers away – while a parallel rise in borrowing costs for developers has made it harder to build new projects.
- Indeed, the inexhaustible demand for capital from AI hyperscalers and the US government must be reduced something, and that something has been the housing sector.
- Residential investment has subtracted from overall GDP for five of the last six quarters.
Zoom out: Housing affordability is at the heart of Americans’ general dissatisfaction with economic conditions, and all signs point to the situation getting worse instead of better.
- Despite both parties’ emphasis on increasing housing supply — including the passage of legislation to encourage more construction earlier this year — the conditions weigh against a building boom.
- Real estate developers compete with data center builders for labor and materials like copper, concrete and HVAC equipment.
Please note: Restrictive immigration policy has also reduced the supply of construction workers.
- “Nationwide, more than a third of builders reported immigration enforcement activity in their market areas over the past month, causing construction delays and discouraging legal workers from reporting to work,” NAHB President Bill Owens, an Ohio homebuilder, said in the press release.
Between the lines: An unfortunate side effect of relying on the Fed’s interest rate policy for macroeconomic stabilization is that interest rate sensitive sectors, particularly housing, take the chin when the economy shows signs of overheating.
- This is particularly problematic today, when the persistent lack of housing constitutes a defining economic challenge of our time.
The bottom line: The current alignment of interest rates, housing supply and construction costs does not please anyone.
- Builders can’t afford to build, buyers can’t afford to buy, and even people with pre-2022 mortgages can’t afford to move.
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