Housing starts fall again in October as high mortgage rates sap demand
Number of new homes under construction fell in October
Fed is ‘perpetuating’ America’s housing shortage, analyst says
Witkoff Group Chairman and CEO Steve Witkoff assesses the volatile real estate market and the impact soaring mortgage rates have had on the U.S. economy.
New U.S. home construction slumped again in October as rapidly rising mortgage rates continue to cool demand and the once red-hot housing market.
Housing starts slid 4.2% last month to an annual rate of 1.425 million units, according to new Commerce Department data released on Thursday. That is above Refinitiv economists' forecast for a pace of 1.410 million units.
Applications to build — which measures future construction — fell to an annual rate of 1.53 million units.
Permits for construction of one-family homes, which account for the biggest share of homebuilding, also dropped to the lowest since the early months of the COVID-19 pandemic.
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Houses under construction at the Norton Commons subdivision in Louisville, Kentucky, US, on Friday, July 1, 2022. (Photographer: Luke Sharrett/Bloomberg via Getty Images) (Photographer: Luke Sharrett/Bloomberg via Getty Images / Getty Images)
"The housing market is coming off of a euphoric run during the post-pandemic period of historically low interest rates," said Jeffrey Roach, chief economist for LPL Financial. "The slowing housing activity does not look as bad when compared with 2019. Rising borrowing costs and hesitant home builders could make the nationwide housing shortage worsen in the near term if activity cools below 2019 levels."
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the eleventh consecutive month to 33, marking the worst stretch for the housing market since the survey launched in 1985.
Any reading above 50 is considered positive; prior to this year, the gauge has not entered negative territory since 2012, excluding a brief — but steep — drop in May 2020.
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A for sale sign stands in front of a house on Oct. 6, 2020, in Westwood, Massachusetts. (AP Photo/Steven Senne, File / AP Newsroom)
The index has fallen to half of what it was just six months ago, when it stood at 76. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers — flush with cash and eager for more space during the pandemic — started flocking to the suburbs.
"Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce," said NAHB Chairman Jerry Konter, a homebuilder and developer from Savannah, Georgia.
The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades. Policymakers already approved six straight interest rate hikes, including four 75-basis-point increases in June, July, September and November, and have shown no sign of pausing as they try to crush stubbornly high inflation.
Fed increases interest rates by 75 basis points
Former White House council of economic advisers chair Tomas Philipson discusses the Fed ordering a big rate hike with midterms only 6 days away on ‘Fox Business Tonight.’
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The average rate for a 30-year fixed mortgage fell to 6.61% in the week ending Nov. 17, sharply lower than 7.08% the week prior, according to recent data from mortgage lender Freddie Mac. Still, it is significantly higher than just one year ago when rates stood at 2.98%.