New construction fell more than expected in November, the Census Bureau and the Department of Housing and Urban Development said Tuesday, continuing a string of weak showings as mortgage rates rose and the economy softened.
Building permits were down 11.2% from October to an annual rate of 1.342 million, while starts slid 0.5% annually to 1.427 million. Permits are down 22.4% from a year ago and 16.4% below November 2021 levels.
The housing sector is being hit by a rapid rise in mortgage rates as the rate on a 30-year fixed-rate loan has more than doubled from 3.1% a year ago to nearly 6%. The recent fall in rates from their earlier levels of 7% has given builders hope that better days may be ahead.
“Single-family homebuilders are pulling back now, but there are signs they could prepare for a return to housing demand in 2023,” said Lisa Sturvant, chief economist at MLS Bright. “New housing starts were down again in November, the seventh consecutive month in which new starts were lower than a year earlier. New residential construction activity also decreased compared to October.”
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“Builders are offering incentives and price reductions for quick move-ins to work through excess inventory, but they are not finding many homebuyers ready to act right now,” he added. “Home shoppers are largely sitting on the sidelines – due to the usual holiday slowdown, but buyers are also waiting to see whether mortgage rates fall further.”
On Monday, the National Association of Home Builders reported that its monthly index of builder confidence fell for the 12th straight month in December, although expectations for the future had risen.
“The slowdown in new construction is a concern because the housing market remains underbuilt relative to demand,” said Odetta Kushi, deputy chief economist at title insurer First American. “The short-term contraction in affordability is leading to less demand from potential buyers, but, in the long run, new home construction is necessary to meet shelter demand.”