Housing starts retreated again in October as home builders continue to be met by reluctant home buyers hindered by inflation and higher mortgage rates.
Combined starts in October were at a seasonally adjusted annual rate of 1.425 million, declining 4.2% from the revised September estimate of 1.488 million, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported this morning.
The latest total housing starts figure is also 8.8% below the October 2021 rate of 1.563 million.
Single-family starts for the month decreased by 6.1% to a rate of 855,000 compared to the revised September figure of 911,000.
“This will be the first year since 2011 to post a calendar year decline for single-family starts,” said NAHB Chief Economist Robert Dietz. “We are forecasting additional declines for single-family construction in 2023, which means economic slowing will expand from the residential construction market into the rest of the economy.”
The rate for units in buildings with five units or more was 556,000, slipping 0.5% from a revised September rate of 559,000. But the latest number is 17.3% above a rate of 474,000 for the same period a year ago.
Permits in October fell 2.4% to a seasonally adjusted annual rate of 1.526 million in comparison to the revised September rate of 1.564 million. Total permits in October are also 10.1% below the October 2021 rate of 1.698 million.
Single‐family permits for the month were at a rate of 839,000, which is 3.6% below the revised September figure of 870,000.
Authorizations of units in buildings with five units or more were at a rate of 633,000 in October, sliding 1.9% from the prior month but rising 11.2% from the same period a year ago.
“Mirroring ongoing falloffs in builder sentiment, builders are slowing construction as demand retreats due to high mortgage rates, stubbornly elevated construction costs and declines for housing affordability,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga.
The NAHB reported yesterday that builder confidence has fallen for 11 straight months this year.
Builder confidence in the market for newly-built single-family homes dropped five points to 33, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released on Nov. 16.
This is the lowest confidence reading since June 2012, with the exception of the onset of the pandemic in the spring of 2020.
The NAHB attributes the low builder sentiment to increased interest rates, high building material costs, and declining housing affordability conditions.
Despite affordability issues and a major slowdown in residential construction, a housing supply challenge could be on the horizon.
“Even as days on the market are lengthening, overall housing inventory still remains near historic lows," said Lawrence Yun, chief economist of the National Association of Realtors. "New listings are actually lower compared to the same period a year ago. That means once the gate opens a bit for home buyers, we could again face a housing shortage."
Yun says more new home construction is needed, as well as more rehabilitation of disused buildings into residential units.