The disconnect between policymakers’ housing aspirations and market realities continues widening, with October’s housing starts and permits dropping to recession-level figures despite widespread calls for increased construction.
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Recent data from the Census Bureau reveals housing starts fell 3.1% below September’s revised estimate, landing at a seasonally adjusted annual rate of 1,311,000 units. Building permits declined 0.6% from September, marking a 7.7% drop from October 2023.
The numbers create friction with recent comments from Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, who, according to HousingWire, suggested housing demand remains robust enough to warrant higher mortgage rates.
The data tells a different story, with existing home sales hitting their third consecutive year of record lows when adjusted for workforce size.
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Builder behavior offers telling insights into market conditions. HousingWire said construction companies have shown increased optimism when mortgage rates approach 6%, but consistently pull back when rates climb between 6.75% and 7.5%. The pattern extends beyond single-family homes, with multiunit permits already at recession levels.
The market’s sensitivity to interest rates became evident during a brief period of improved builder confidence when mortgage rates temporarily dipped from 7.5% to 6%. While builders maintain the ability to boost sales through rate buydowns, sustaining rates in the low 6% range has proved challenging.
Looking ahead, the path to increased housing construction faces hurdles. Lower Fed rates could theoretically support land purchases and apartment construction, but those developments require extensive lead time. The current construction slowdown risks exacerbating rent inflation as supply constraints persist.
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New home sales lag behind levels seen during the 2001 tech recession, highlighting the severity of current market conditions. The reality sharply contradicts predictions from 2021 that anticipated a decade-long construction boom.
Instead, rising interest rates have dramatically cooled building activity.
