Housing starts, new permits and finished construction all continued to fall in October, according to the latest data from the U.S Census Bureau, with these leading indicators affirming that a quick turnaround for housing this winter is extremely unlikely.
Housing starts fell 4.2% from last month, down 8.8% year-over-year. Permits dropped 2.4%, 10.1% lower than this time last year. Completions were down 6.4%, and 6.6% below 2021 levels.
Single-family units saw the biggest hit, with starts for these units down 6.1% from last month, permits dropping 3.6% and completions lower by 8.3%.
“New housing construction will continue to be sluggish throughout the end of the year,” predicted Bright MLS Chief Economist Dr. Lisa Sturtevant in a statement.
As nearly every metric tracking the national housing market has fallen precipitously since the spring, when the Federal Reserve began a swift series of sharp rate hikes and Russia’s invasion of Ukraine drove up energy prices and shook consumer confidence, economists continue to hope for a “soft landing” from unsustainable pandemic highs.
Most large real estate companies have said they anticipate a slow market that lasts through some or most of 2023. The majority of experts and leaders in the housing industry have also said that a crash at the scale or severity of 2008 is extremely unlikely.
This latest data would seem to affirm the former conclusion—that builders, at least, are not expecting to emerge from this winter into a fully recovered or growing real estate market.
“With much weaker housing demand, homebuilders have to offer deals in order to attract buyers,” Sturtevant explained. “More homebuilders are paying points for buyers or are buying down mortgages to help buyers qualify for financing. Builders are also cutting prices and offering incentives to try to get quick move-ins.”
Another important takeaway from this data is that the ongoing housing decline will continue to affect different regions or housing types at different levels, due to both seasonality and more fundamental factors.
The Northeast, for instance, saw a dizzying drop of 34.7% from last month for starts, while the South actually showed some signs of a rebound, with housing starts rising 6.7% from last month—now only down a fractional 1.1% from last year.
The Midwest was down 11.1% and off 10.3% from last year, while the West saw a 10.6% decline, still 19.6% lower than 2021.
Multifamily also skewed far away from the overall downward trend, with permits for two- to four-unit buildings up 10.2% from last month and 3.8% year-over-year. Starts for larger buildings—five or more units—were down a fractional 0.5%, but up 17.3% from last year.
National Association of REALTORS® Chief Economist Lawrence Yun said there is a danger that when rates fall and demand ramps up, the industry will again face a crisis of inventory.
“Once the gate opens a bit for homebuyers, we could again face a housing shortage. This is why more new home construction is needed, as well as more rehabilitation of disused buildings into residential units,” he said in a statement.
Sturtevant noted that this data does not track any change following this month’s better-than-expected inflation report, which could give builders more confidence that mortgage rates will stabilize sooner rather than later.
“The inflation report means that homebuilders could find that the prices of materials and construction financing costs might also begin to come down,” she said. “Mortgage rates also declined in the wake of lower inflation. In the near-term, mortgage rates will likely remain volatile. However, looking ahead, mortgage rates should fall further as we head into 2023.”
