Housing starts fall amid market woes
Zachary Halaschak
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The number of housing starts tumbled in April, an indication that the housing market is still taking a hit from the Federal Reserve’s interest rate hikes.
The number of new private housing units under construction fell 22.3% from April 2022 to this past month, according to a Wednesday report from the Census Bureau. Starts are now running at a 1.401 million annual rate, adjusted for seasonal variation. On a month-to-month basis, though, starts increased 2.2% in April.
For permits to build, which are seen as a proxy for future construction, the seasonally adjusted annual rate of new permits last month was 21.1% below the rate in April 2022.
Tuesday’s report comes as the Fed’s campaign to slow spending across the economy by hiking interest rates has taken a major toll on the national housing market.
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The rate on the average 30-year fixed-rate mortgage soared from just over 3% at the start of 2022 to over 7% in November. It has since drifted down following the collapse of Silicon Valley Bank to 6.35%.
The median payment on a mortgage for a new home has exploded in the past three years amid the central bank’s tightening.
In March, the median monthly payment sat at nearly $2,100, according to data compiled by the Mortgage Bankers Association. That is a massive increase, more than 85%, from the $1,128 level median payments were at in April 2020.
The steep rise in the cost of mortgages has put homebuying out of reach for many and crushed home sales over the past year.
Still, there are signs that the housing market may be stabilizing. This week the National Association of Home Builders announced that its builder confidence index rose five points to 50, the first time that it was not in negative territory since July.
“New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction.”
Homebuilder confidence is up from a recent low of 31 in December. It had previously peaked at a 35-year high of 90 in November 2020 after the Fed slashed interest rates and drove mortgage rates to bargain levels.
While new home sales rose in March, a sign of stabilization in the market, sales are still down by a large margin from the peaks notched during the pandemic. The housing market is in what most economists characterize as a recession.
Sales of existing homes declined in March and are down a whopping 22% from the year before. Existing-home sales fell by 2.4% in March to a seasonally adjusted annual rate of 4.44 million, according to a recent report by the National Association of Realtors.
The median price of an existing home in March was $375,700, a decline of 0.9% from the year before.
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The Fed announced earlier this month that it was raising its interest rate target by a quarter of a percentage point, although most investors and economists expect the Fed to pause hiking at its next meeting in June.
The central bank’s key overnight rate is 5% to 5.25%. Rates are now the highest they have been since 2007, at the outset of the global financial crisis.