New Residential Construction Delays Amidst Rising Mortgage Rates
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Housing starts decline significantly as mortgage rates impact the market
Data from the Census Bureau, released on Tuesday, reveals a discouraging scenario for the residential construction market. New construction, including both single-family and multifamily homes, experienced its most substantial decline in four years, reflecting the adverse effect of rising mortgage rates on housing activity.
In March, housing starts plummeted by 14.7% compared to the previous month, declining from an annualized pace of 1.55 million units to 1.32 million units. Single-family starts declined by 12.4% month over month, compounding the downward trend.
An economist’s verdict: Growth in new home construction falters
LPL Financial’s chief economist, Jeffrey Roach, interprets these figures as a concerning sign that underlines a deceleration in the pace of growth in new home construction. Roach notes that housing construction seems poised to slow down as potential homebuyers increasingly consider the current time unfavorable for purchasing a home. He further suggests that residential investment could have a dampening effect on GDP growth in the coming quarters, unless the Federal Reserve initiates an easing cycle to stabilize the housing market.
Builder sentiment remains flat as interest rates leave buyers uncertain
Adding to the worries in the housing market, April’s builder sentiment, as reported by the National Association of Home Builders (NAHB), remained flat compared to the previous month, breaking the positive streak of four consecutive months. The NAHB accentuates that buyers continue to hesitate, awaiting more clarity on the direction of interest rates before making their move.
Experts predict a mixed bag for the housing market
Thomas Ryan, a property economist at Capital Economics, conveyed that although single-family housing starts are positioned to benefit from the scarcity of available second-hand homes, which is driving demand toward new construction, this strength will likely be offset by a weakness in multi-family housing starts. Ryan’s expectations are for multi-family starts to hover around current levels, resulting in merely a slight increase in total housing starts by the end of this year.
Implications for the Homebuilders ETF
Tuesday morning saw a decline of more than 1% in the SPDR S&P Homebuilders ETF (XHB), illustrating a sentiment among investors that aligns with the challenges faced by the housing market.
Note: The information in this article is solely for informational purposes.
Source: “Homebuilder Stocks Slide as High Mortgage Rates Stifle April Confidence Reading” – Yahoo Finance
