Welcome to today’s coverage on the real estate market, where we delve into the multifaceted challenges and developments shaping the landscape. From the impact of high mortgage rates on new home construction to the significant legal settlements affecting broker commissions, our comprehensive analysis offers insights into the current state and future predictions of the housing market. As builders face supply shortages and financing hurdles, and as the market reacts to economic pressures, we bring you detailed reports to help you understand these complex dynamics. Stay informed with our in-depth coverage on how these factors are influencing both buyers and sellers in today’s ever-evolving real estate environment.
High mortgage rates hit new home construction | Fortune
The housing crisis in America is multifaceted. Prospective home buyers are reluctant to buy, given sky-high mortgage rates and home prices—and for the same reason, current homeowners have shied away from selling. But there’s also a massive housing crunch; the U.S. is short 3 million to 6 million homes.
And to make matters worse, there’s been a slowdown in both single-family and multifamily housing construction, according to U.S. Census Bureau data issued Tuesday. Indeed, single-family starts fell in March because “builders are beginning to anticipate that mortgage rates will likely remain elevated for much longer than previously thought,” according to Zillow. As of Wednesday, the average 30-year fixed mortgage rate was at a five-month high of 7.43%. This is the biggest one-month drop in new home construction since April 2021, according to U.S. Census Bureau data.
A number of factors have contributed to slowing new construction numbers, industry experts agree. And it doesn’t all have to do with consumers—there are several market factors that have forced builders to pump the brakes on new builds.
“While we are experiencing a housing supply shortage, the fact is that with high mortgage rates and an uncertain job market, many that want to purchase homes simply can’t do so,” Ryan Hoover, CEO of Ceed Civil Engineering, which specializes in new-home construction, tells Fortune. “So from a builder’s perspective, it makes little economic sense to ramp up construction on homes that won’t be sold in the near future.” What’s more, materials costs are rising again, and the lumber tax is expected to go up this summer, he says.
It’s also more difficult for builders to find more affordable financing options for new builds, Kori Sassower, a team head and real estate agent with Compass who focuses on new construction, tells Fortune. And there’s less land available to buy for new construction than in recent years, which is prompting more builders to buy and tear down existing homes, she adds.
“Ultimately, builders aren’t holding back because they don’t believe the demand is there,” Sassower says. “The issue is that they don’t have enough supply and financing is making building prohibitive.”
Single-family housing starts are slowing, but they’re still 21.2% higher than last year’s pace, according to Zillow. Multifamily builds are faring worse: Construction on buildings with at least five units decreased by 20.7% in March and 43.7% from the previous year, Zillow’s analysis shows.
Falling construction numbers will have both long- and short-term effects on the housing market. In the immediate term, lower construction numbers mean lower inventory levels—preventing the drop in home prices that buyers are clamoring for. Since the start of the pandemic, home prices have skyrocketed, which makes it exceedingly difficult for new buyers to break into the market. Indeed, the stock of existing homes available for sale remains 36% below pre-pandemic levels, and home values increased faster this month when compared to March 2023, according to Zillow.
Slowing construction will also impact local labor markets as fewer projects get started, Ryan Reich, real estate developer and chief investment officer of Mountain Shore Properties, tells Fortune. In other words, fewer new projects mean fewer construction jobs.
“Longer-term, when demand finally does pick up—from lower interest rates or the slow rollover of existing mortgages to higher-rated mortgages—it will put upward pressure on prices as it takes several years for housing supply to come online to meet demand,” Reich says.
To combat high mortgage rates and home prices, builders have sweetened incentives to entice prospective buyers to actually make a move.
“‘Incentive’ is just a big fancy word for discount, and what we’re seeing on that front is that it’s what’s creating a competitive advantage for the new-home market,” Devyn Bachman, senior vice president of research with John Burns Research and Consulting, previously told Fortune. The mortgage-rate buydown, the industry term for discounted mortgage rates, is the most “desired and most effective” incentive offered in the new-home market today, she said.
What’s more, 22% of builders cut their prices this month, according to Zillow, further sweetening the pot for buyers. The average price cut is 6%. But for some buyers, that’s still not enough.
“Long-term, there will be a shift to alternative housing solutions,” Hoover says. One thing his firm has seen is an increase in requests to design shipping container homes, “which indicates to me that buyers are looking for alternatives to the traditional housing market.”
New Residential Construction Press Release
Contact
Data Inquiries: Economic Indicators Division, Residential Construction Branch
Phone: 301-763-5160
Email: [email protected]
Media Inquiries: Public Information Office
Phone: 301-763-3030
Email: [email protected]
Get Email Updates
Single-family new home construction plunges in big setback for housing market
US single-family homebuilding tumbled in March, and while new construction remains underpinned by a severe shortage of previously owned houses for sale, a resurgence in mortgage rates is pushing potential buyers to the sidelines. The report from the Commerce Department on Tuesday also showed permits for future construction of single-family houses fell to a five-month low.
Residential investment rebounded in the second half of 2023 after contracting for nine straight quarters, the longest such stretch since the housing market collapse in 2006. But the recovery appears to be losing steam.
“The housing recovery has stalled for now as home builder expectations of sharply lower interest rates this year have faded,” said Christopher Rupkey, chief economist at FWDBONDS. “One thing is for certain, and that is home prices are going to be on an upward, more unaffordable trend without more supply.”
Single-family housing starts, which account for the bulk of homebuilding, dropped 12.4% to a seasonally adjusted annual rate of 1.022 million units last month, the Commerce Department’s Census Bureau said.
Data for February was revised higher to show single-family starts rebounding to a rate of 1.167 million units instead of the previously reported 1.129 million units.
Single-family home building increased 21.2% on a year-on-year basis in March.
The latest government data showed there were 757,000 housing units on the market in the fourth quarter, well below the 1.145 million units before the COVID-19 pandemic.
A survey from the National Association of Home Builders (NAHB) on Monday showed confidence among single-family home builders was unchanged at an eight-month high in April. The NAHB said “buyers are hesitating until they can better gauge where interest rates are headed.”
The average rate on the popular 30-year fixed-rate mortgage has drifted up towards 7%, data from mortgage finance agency Freddie Mac showed, as strong reports on the labor market and inflation suggested the Federal Reserve could delay an anticipated rate cut this year.
A few economists doubt that the central bank will lower borrowing costs in 2024.
The Fed has kept its policy rate in the 5.25%-5.50% range since July.
Single-family homebuilding dropped in the Northeast, Midwest, and the densely populated South, but rose in the West.
Starts for housing projects with five units or more plunged 20.8% to a rate of 290,000 units.
Overall housing starts plummeted 14.7%, the biggest drop since April 2020, to a rate of 1.321 million units in March.
Economists polled by Reuters had forecast starts would fall to a rate 1.487 million units.
Permits for future construction of single-family homes fell 5.7% to a rate of 973,000 units in March, the lowest level since last October.
Multi-family building permits were unchanged at a rate of 433,000 units.
Building permits as a whole dropped 4.3% to a rate of 1.458 million units, the lowest level since last July.
The number of houses approved for construction that were yet to be started rose 0.7% to 273,000 units in March.
The single-family homebuilding backlog was unchanged at 141,000 units.
The completions rate for that housing segment declined 10.5% to 947,000 units.
Overall housing completions decreased 13.5% to a rate of 1.469 million units.
Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month over time to bridge the inventory gap.
The number of housing units under construction slipped 0.9% to a rate of 1.646 million units.
The inventory of single-family housing under construction increased 0.3% to a rate of 689,000 units.
The stock of multi-family housing under construction dropped 1.8% to 940,000 units.
Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again? – Forbes Advisor
As we head into peak home-buying season, signs of life have begun to spring up in the housing market. Even so, still-high mortgage rates and home prices amid historically low housing stock continue to put homeownership out of reach for many.
Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Elevated mortgage rates, out-of-reach home prices, and record-low housing stock are the perennial weeds that experts say hopeful home buyers can expect to contend with this spring—and beyond.
Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower rise in home prices this year compared to recent years, but price fluctuations will continue to vary regionally and depend strongly on local market supply.
U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022.
For a housing recovery to occur, several conditions must unfold. The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS. While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations.
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash remains low for 2024. Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.
Read more