David Logan of the National Association of Home Builders (NAHB) opens the week reporting on the producer price index (PPI) for inputs to residential construction, which rose 8.3% in 2022, down from 18.9% in 2021. This is welcome news for builders, who saw runaway material costs throughout the pandemic. 

Source: NAHB (January 2023)

Further NAHB data shows that “overall housing starts decreased 1.4% to a seasonally adjusted annual rate of 1.38 million units in December…Also of note, single-family housing starts ended the year down more than 10%, marking the first annual decline since 2011.”

Hannah Jones of Realtor.com reports on construction, noting that permits for single-family home construction dropped 1.6% month over month in December and almost 30% year over year. That said, multifamily permits for 5+ units jumped by 7.1% month over month. Jones notes that:

Interest rates fell as low as 6.27% in December, down 0.8 percentage points from recent highs. Home price growth also slowed to 8.4% year-over-year in December, the slowest growth in over a year. These factors, coupled with slowing inflation, improved home purchase sentiment as well as improved home builder sentiment. The slightly improved, though still historically low, home buyer and home builder sentiment allowed for a surge in single-family home construction activity. Lumber prices fell as low as $375 per board foot in December as well, giving builders wiggle room to flex to the market’s demands. 

Diana Olick of CNBC reports on home builder sentiment, quoting NAHB chairman Jerry Konter as stating “[i]t appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales…The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”

Orphe Divounguy of Zillow notes that homebuilders are pumping the brakes on home construction due to the rise in inflation and interest rates. That said, more homes were under construction last year than at any time since 2006, and slightly lower interest rates may spur buyers to jump back into the market.

Indeed, Brooklee Han of HousingWire reports that “[l]ooking ahead, despite homebuilder confidence rising for the first time in a year in January, homebuilders—especially single-family homebuilders—are still pulling back. Building permits were issued at an annual rate of 1.33 million in December, down 1.6% from November and 29.9% from December 2021.”

Housing policy

The White House released a statement last week on restoring the Fair Housing Act. Kriston Capps of Bloomberg reports on this move, noting that the act will require local municipalities and states to “examine patterns of residential segregation within their borders and take steps to uproot them.” Those jurisdictions that fail to comply with this legislation will lose access to billions of dollars of federal funding. 

The Department of Housing and Urban Development (HUD) Secretary Marcia L. Fudge comments via CNN on this move:

“It would give state and local leaders the tools and framework necessary to advance fair housing. The rule is intended to allow communities to leverage HUD funding with other federal, state and local resources to develop solutions that meet their own unique needs. Most importantly, the proposed rule would give the community a seat at the table in our ongoing work to guarantee fair housing, while adding accountability mechanisms to ensure that recipients of HUD funding comply with their duty to affirmatively further fair housing.”

Affordable Housing Finance comments on this move, noting that the rule aims to reinvigorate state and municipal jurisdictions to take action on equitable housing access. Specifically, “the proposed rule is designed to simplify the required fair housing analysis, emphasize goal-setting, increase transparency for public review and comment, foster local commitment to addressing fair housing issues, enhance HUD technical assistance to local communities, and provide mechanisms for regular program evaluation and greater accountability, among other changes.”

Buy vs. rent

According to a recent ATTOM Data Solutions report, it’s more affordable to rent versus buy a home in most of the U.S. Reportedly, the average rent for 3 bedrooms is now more affordable than owning a comparably sized median-priced home in 95% of U.S. counties.

The locations where 3-bedroom rents are rising faster than median sales prices for single-family homes include Cook County (Chicago), IL; San Diego County, CA; Orange County, CA; Kings County, NY; and Miami-Dade County, FL.

Rick Sharga, executive vice president of market intelligence for ATTOM, notes that: 

“Last year our study concluded that it was more affordable to own than to rent in 60 percent of the markets analyzed. But with mortgage rates doubling, monthly payments for new homeowners rose by 45-50 percent compared to a year ago, even though home price appreciation has slowed down dramatically. This has made renter more affordable in the majority of markets, despite rental rates continuing to rise over the past year.”

Despite this, we have seen an ongoing deceleration of rent across the country. According to CoreLogic, year-over-year rent prices fell 7.5% in November, with Orlando taking the top spot for rent increases in 2022.

Indeed, Lily Katz of Redfin notes that their index shows rent increasing 5% to $1,979 year over year, the slowest growth since July 2021, “as persistently high rental costs, inflation and economic uncertainty continued to dampen rental demand. Rents grew at more than three times that pace one year earlier. “

Source: Redfin (January 2023)

Finally, Jeff Tucker of Zillow reports that its index shows a drop of 0.3% month over month between November and December for average asking rents.

“This new batch of data further underscores the current divergence between market asking rents, which are declining rapidly…Rent growth has been cooling since reaching a peak of 17.1% year-over-year growth in February. Americans’ demand for housing has waned this year after booming in 2021, thanks to higher costs of rent and generally high inflation. More people are doubling up with roommates or family, pushing up the rental vacancy rate and thereby putting some pressure on landlords to keep rent hikes in check. This slower pace of rent growth is likely to show up in official measures of rent inflation in early 2023.”

Source: Zillow (January 2023)