The latest January data on new residential construction points to a mostly stable housing market that, in some instances is trending downward, according to the monthly report from the U.S. Census Bureau and Department of Housing and Urban Development (HUD).
Key findings:
- Authorized building permits for housing units were issued at a seasonally adjusted rate of 1,899,000. This marks a 0.7% increase versus December 2021 and is a 0.8% increase versus January 2021.
- Privately-owned housing starts were authorized at an adjusted annual rate of 1,638,000. This marks a 4.1% decrease versus December 2021. However, this figure is 0.8% higher than January 2021.
- Single-family housing starts saw similar numbers in January, with a rate of 1,116,000, which represents a 5.6% decrease versus December 2021.
- Privately-owned housing completions were at a seasonally adjusted rate of 1,246,000 in January. This is 5.2% below December 2021; and 6.2% down from January 2021.
- Single-family housing completions in January saw a rate of 927,000, which is 7.3% below December 2021.
Expert takeaway:
“New construction continued near its recent pace in January, reflecting strong but moderating homebuilder sentiment, said realtor.com® chief economist, Danielle Hale. The NAHB Market Index slipped slightly in the first two months of the year, but is down only modestly from its 2021 high, as builders reported strong sales activity and easing expectations.
In 2022, homebuyers face a market full of challenges and opportunities against a backdrop of ongoing imbalances between supply and demand. Builders have recently maintained construction near 15-year highs, despite struggles with supply-chain issues and higher prices for inputs like lumber, land and labor. Nevertheless, the shortage of new homes relative to new households persists. In fact, our recent analysis suggests that the deficit has grown to 5.8 million new homes—roughly 5x the projected single-family home construction for the year. We expect housing starts to advance another 5% by the end of 2022, as builders continue to play catch-up with ongoing buyer interest.”
“The national average on the 30-year fixed rate mortgage moved above 4% for first time since July 2019, hitting 4.03% according to Bankrate’s national survey of lenders on Wednesday, said Greg McBride, chief financial analyst, Bankrate. Surging inflation and forthcoming interest rate hikes from the Federal Reserve have driven rates nearly a full percentage point higher over the past three months, from 3.15% on November 10.
More than a decade of chronic underbuilding and millions of millennials moving into the homebuying stage of life has created a significant imbalance between housing supply and demand. While rapidly rising mortgage rates may temper the demand somewhat, don’t expect home price appreciation to come to a halt. A more modest pace of appreciation is the likelier outcome.
Don’t fall into the trap of using an adjustable-rate mortgage as a crutch of affordability. There is little in the way of up-front savings, an average of just one-half percentage point for the first five years, but the risk of higher rates in future years looms large. New adjustable mortgage products are structured to change every six months rather than every 12 months that had previously been the norm.”
Although the national average on a 30-year fixed rate mortgage is above 4%, plenty of sub-4% rates are available for borrowers that shop around. Conducting an online search can save thousands of dollars by finding lenders offering a lower rate and more competitive fees.”
