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Higher Mortgage Interest Rates Slow Housing Production in October

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Housing starts edged lower last month as average monthly mortgage rates increased a quarter-point from 6.18% to 6.43% between September and October, according to Freddie Mac.

Overall housing starts decreased 3.1% in October to a seasonally adjusted annual rate of 1.31 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The October reading of 1.31 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 6.9% to a 970,000 seasonally adjusted annual rate. On a year-to-date basis, single-family construction is up 9.3%. The volatile multifamily sector, which includes apartment buildings and condos, increased 9.6% to an annualized 341,000 pace but are down 29.3% on a year-to-date basis.

Although housing starts declined in October, builder sentiment improved for a third straight month in November as builders anticipate an improved regulatory environment in 2025 that will allow the industry to increase housing supply. Further interest rate cuts from the Federal Reserve through 2025 should result in lower interest rates for construction and development loans, helping to lead to a stabilization for apartment construction and expansion for single-family home building.

While multifamily starts increased in October, the number of apartments under construction is down to 821,000, the lowest count since March 2022 and down 18.9% from a year ago. In October, there were 1.8 apartments that completed construction for every one apartment that started construction. The three-month moving average reached a ratio of 2 in October.

There were 644,000 single-family homes under construction in October, down 3.6% from a year ago and down 22% from the peak count in the Spring of 2022.

On a regional and year-to-date basis, combined single-family and multifamily starts are 10.4% higher in the Northeast, 1.7% lower in the Midwest, 5.0% lower in the South due to hurricane effects, and 4.4% lower in the West.

Overall permits decreased 0.6% to a 1.42 million unit annualized rate in October. Single-family permits increased 0.5% to a 968,000 unit rate and are up 9.4% on a year-to-date basis. Multifamily permits decreased 3.0% to an annualized 448,000 pace.

Looking at regional data on a year-to-date basis, permits are 0.9% higher in the Northeast, 3.9% higher in the Midwest, 2.4% lower in the South and 4.8% lower in the West.

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Builder Confidence Moves Higher as Election Uncertainty is Lifted

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Builder sentiment improved for the third straight month, and builders expect market conditions will continue to improve with Republicans winning control of the White House and Congress.

Builder confidence in the market for newly built single-family homes was 46 in November, up three points from October, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. Future sales expectations posted a notable increase in the November reading of builder sentiment.

While builder confidence is improving, the industry still faces many headwinds such as an ongoing shortage of labor and buildable lots along with elevated building material prices. Moreover, while the stock market cheered the election result, the bond market has concerns, as indicated by a rise for long-term interest rates. There is also policy uncertainty in front of the business sector and housing market as the executive branch changes hands.

The latest HMI survey also revealed that 31% of builders cut home prices in November. This share has remained essentially unchanged since July, hovering between 31% and 33%. Meanwhile, the average price reduction was 5%, slightly below the 6% rate posted in October. The use of sales incentives was 60% in November, slightly down from 62% in October.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI sub-indices were up in November. The index charting current sales conditions rose two points to 49, the component measuring sales expectations in the next six months increased seven points to 64 and the gauge charting traffic of prospective buyers posted a three-point gain to 32.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased four points to 55, the Midwest moved three points higher to 44, the South edged up one point to 42 and the West held steady at 41. HMI tables can be found at nahb.org/hmi.

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Single-Family Permits Higher in September 2024

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Over the first nine months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 763,990. On a year-over-year (YoY) basis, this is an increase of 10.1% over the September 2023 level of 693,908.

Year-to-date ending in September, single-family permits were up in all four regions. The range of permit increases spanned 15.8% in the West to 7.8% in the South. The Midwest was up by 11.8% and the Northeast was up by 10.1% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, driven by New York, was the only region to post an increase and was up by 30.1%. Meanwhile, the West posted a decline of 31.7%, the South declined by 20.7%, and the Midwest declined by 8.4%.

Between September 2024 YTD and September 2023 YTD, 46 states and the District of Columbia posted an increase in single-family permits. The range of increases spanned 43.6% in New Mexico to 0.4% in Oregon. Maryland (-1.5%), New Hampshire (-1.6%), Alaska (-4.3%), and Hawaii (-7.7%) reported declines in single-family permits. The ten states issuing the highest number of single-family permits combined accounted for 63.1% of the total single-family permits issued. Texas, the state with the highest number of single-family permits, issued 122,976 permits over the first nine months of 2024, which is an increase of 10.5% compared to the same period last year. The succeeding highest state, Florida, was up by 1.7%, while the third highest, North Carolina, posted an increase of 8.5%.

Year-to-date ending in September, the total number of multifamily permits issued nationwide reached 362,543. This is 16.4% below the September 2023 level of 433,862.

Between September 2024 YTD and September 2023 YTD, 17 states recorded growth in multifamily permits, while 32 states and the District of Columbia recorded a decline. Georgia reported no change. Rhode Island (+134.6%) led the way with a sharp rise in multifamily permits from 309 to 725, while the District of Columbia had the biggest decline of 70.5% from 2,600 to 766. The ten states issuing the highest number of multifamily permits combined accounted for 63.2% of the multifamily permits issued. Over the first nine months of 2024, Texas, the state with the highest number of multifamily permits issued, experienced a decline of 27.5%. Following closely, the second-highest state in multifamily permits, Florida, saw a decline of 27.0%. California, the third largest multifamily issuing state, decreased by 33.4%.

At the local level, below are the top ten metro areas that issued the highest number of single-family permits.

For multifamily permits, below are the top ten local areas that issued the highest number of permits.

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Single-Family Starts Trend Higher in September

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With the Federal Reserve beginning an easing of monetary policy and builder sentiment improving, single-family starts posted a modest gain in September while multifamily construction continued to weaken because of tight financing and an ongoing rise in completed apartments.

Overall housing starts decreased 0.5% in September to a seasonally adjusted annual rate of 1.35 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The September reading of 1.35 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 2.7% to a 1.03 million seasonally adjusted annual rate. On a year-to-date basis, single-family construction is up 10.1%. The September gain for single-family home building mirrored an increase for the NAHB/Wells Fargo HMI.

While single-family home building increased in September, higher mortgage interest rates in October are likely to place a damper on growth in next month’s data. Nonetheless, NAHB is forecasting a gradual, if uneven, decline for mortgage rates in the coming quarters, with corresponding increases for single-family construction.

The multifamily sector, which includes apartment buildings and condos, decreased 9.4% to an annualized 327,000 pace. This marks the weakest pace since May. Multifamily construction will remain weak as completions of apartments are elevated.

On a regional and year-to-date basis, combined single-family and multifamily starts are 9.0% higher in the Northeast, 2.0% lower in the Midwest, 4.6% lower in the South and 5.4% lower in the West.

Overall permits decreased 2.9% to a 1.43 million unit annualized rate in September. Single-family permits increased 0.3% to a 970,000 unit rate. Multifamily permits decreased 8.9% to an annualized 458,000 pace. This is the weakest reading since May.

Looking at regional data on a year-to-date basis, permits are 0.8% higher in the Northeast, 2.6% higher in the Midwest, 2.2% lower in the South and 5.1% lower in the West.

The number of single-family homes under active construction totaled 642,000 in September. After stabilizing recently, this is down just 4.5% from a year ago. The number of multifamily units under construction declined 3.4% in September to an 842,000 total. This is 16.5% lower than a year ago and is the smallest count since February 2022.

As a sign of the reversal for multifamily construction, the seasonally adjusted annual rate of multifamily construction was 680,000 in September. This was roughly twice the pace of multifamily starts, meaning for every two apartments finishing construction, only one new unit began construction. The pace of multifamily completions was up 41% compared to a year ago.

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Builder Confidence Edges Higher Despite Affordability Headwinds

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With inflation gradually easing and builders anticipating mortgage rates will moderate in coming months, builder sentiment moved higher for a second consecutive month despite challenging affordability conditions.

Builder confidence in the market for newly built single-family homes was 43 in October, up two points from a reading of 41 in September, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

Despite the beginning of the Fed’s easing cycle, many prospective home buyers remain on the sideline waiting for lower interest rates. We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans. However, while housing affordability remains low, builders are feeling more optimistic about 2025 market conditions. A wildcard for the outlook remains the election.

The latest HMI survey also revealed that the share of builders cutting prices held steady at 32% in October, the same rate as last month. Meanwhile, the average price reduction returned to the long-term trend of 6% after dropping to 5% in September. The use of sales incentives was 62% in October, slightly up from 61% in September.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three HMI indices were up in October. The index charting current sales conditions rose two points to 47, the component measuring sales expectations in the next six months increased four points to 57 and the gauge charting traffic of prospective buyers posted a two-point gain to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 51, the Midwest moved two points higher to 41, the South held steady at 41 and the West increased three points to 41. The HMI tables can be found at nahb.org/hmi.

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Single-Family Permits Higher in August 2024

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Over the first eight months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 685,923. On a year-over-year (YoY) basis, this is an increase of 11.5% over the August 2023 level of 615,453.

Year-to-date ending in August, single-family permits were up in all four regions. The range of permit increases spanned 16.2% in the West to 9.7% in the South. The Midwest was up by 12.3% and the Northeast was up by 10.3% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, driven by New York, was the only region to post an increase and was up by 28.9%. Meanwhile, the West posted a decline of 32.2%, the South declined by 21.8%, and the Midwest declined by 9.0%.

Between August 2024 YTD and August 2023 YTD, 47 states posted an increase in single-family permits. The range of increases spanned 44.5% in New Mexico to 1.5% in Maryland. New Hampshire (-1.2%), the District of Columbia (-3.2%), Hawaii (-7.9%), and Alaska (-21.4%) reported declines in single-family permits. The ten states issuing the highest number of single-family permits combined accounted for 63.5% of the total single-family permits issued. Texas, the state with the highest number of single-family permits, issued 110,907 permits over the first eight months of 2024, which is an increase of 12.4% compared to the same period last year. The succeeding highest state, Florida, was up by 5.0%, while the third highest, North Carolina, posted an increase of 10.6%.

Year-to-date ending in August, the total number of multifamily permits issued nationwide reached 326,080. This is 17.3% below the August 2023 level of 394,257.

Between August 2024 YTD and August 2023 YTD, 18 states recorded growth in multifamily permits, while 32 states and the District of Columbia recorded a decline. Wyoming (+104.8%) led the way with a sharp rise in multifamily permits from 125 to 256, while the District of Columbia had the biggest decline of 68.1% from 2,072 to 661. The ten states issuing the highest number of multifamily permits combined accounted for 64.1% of the multifamily permits issued. Over the first eight months of 2024, Texas, the state with the highest number of multifamily permits issued, experienced a decline of 27.8%. Following closely, the second-highest state in multifamily permits, Florida, saw a decline of 25.1%. California, the third largest multifamily issuing state, decreased by 31.5%.

At the local level, below are the top ten metro areas that issued the highest number of single-family permits.

For multifamily permits, below are the top ten local areas that issued the highest number of permits.

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This article was originally published by a eyeonhousing.org . Read the Original article here. .

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Existing Home Sales Edge Higher in July

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Existing home sales increased for the first time in five months, according to the National Association of Realtors (NAR), as improving inventory and declining mortgage rates motivated some buyers to act. Despite these changes, sales remained sluggish and low inventory continued to push up median home prices. However, we expect increased activity in the coming months as mortgage rates continue to moderate. Improving inventory is likely to ease home price growth and enhance affordability.

Homeowners with lower mortgage rates have opted to stay put, avoiding trading existing mortgages for new ones with higher rates. This trend is driving home prices higher and holding back inventory. Mortgage rates are expected to continue to decrease gradually, leading to increased demand (and unlocking lock-in inventory) in the coming quarters. However, that decline is dependent on future inflation and job reports, and especially possible easing by the Federal Reserve.

Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, rose 1.3% to a seasonally adjusted annual rate of 3.95 million in July. This marks the first increase after four months of declines. On a year-over-year basis, sales were still 2.5% lower than a year ago.

The first-time buyer share stayed at 29% in July, identical to June but down from 30% in July 2023. The inventory level rose from 1.32 million in June to 1.33 million units in July and is up 19.8% from a year ago.

At the current sales rate, July unsold inventory sits at a 4.0-months supply, down from 4.1-months last month but up from 3.3-months a year ago. This inventory level remains low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction. However, the count of single-family resale homes available for sale is up almost 19.1% on a year-over-year basis.

Homes stayed on the market for an average of 24 days in July, up from 22 days in June and 20 days in July 2023.

The July all-cash sales share was 27% of transactions, down from 28% in June but up from 26% a year ago. All-cash buyers are less affected by changes in interest rates.

The July median sales price of all existing homes was $422,600, up 4.2% from last year. This marked the 13th consecutive month of year-over-year increases. The median condominium/co-op price in July was up 2.7% from a year ago at $367,500. This rate of price growth will slow as inventory increases.

Existing home sales in July were mixed across the four major regions. In the Northeast, South, and West, sales increased by 4.3%, 1.1%, and 1.4%, respectively, while sales in the Midwest remained unchanged. On a year-over-year basis, sales rose in the Northeast (2.1%) and West (1.4%) but fell in the Midwest (-5.2%) and South (-3.8%).

The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI rose from 70.9 to 74.3 in June as inventory improved. On a year-over-year basis, pending sales were 2.6% lower than a year ago per NAR data.

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