Orphe Divounguy of Zillow starts this week by reporting that new housing starts and permits barely increased in October as builders remain cautious amidst high-interest rates. Housing permits issued in October increased only 1.1% month-over-month and dropped 4.4% annually. Starts hit 1.37 million in October, up 1.9% month-over-month and down 4.2% annually. Surprisingly, multifamily starts moved up in October following declines for most of the year.

Danielle Hale of Realtor.com reports on the data, noting that “while single-family permits ticked up an impressive 13.9%, they did not fully offset more significant declines in multi-family, especially high-density multi-family (-27.8%). Regionally, single-family permitting was up from a year ago in all four regions and gained monthly in the Northeast and West while slipping in the Midwest and South.”

Source: Realtor.com (November 2023)

Lily Katz of Redfin reports on pending sales, highlighting that new listings sat at a six-month high in October, which helped drive an increase in pending sales. That said, Redfin data shows that buyers backed out of deals at the highest rate on record. 

Source: Redfin (November 2023)

As a result, “[s]ellers are cutting prices and offering concessions to entice buyers. Roughly 1 in 5 (20.8%) homes that sold in October had a price drop, just shy of the 21.6% record high hit a year earlier. More than one-third of sellers are offering concessions, which can include money for repairs, closing costs and/or mortgage-rate buydowns.”

Sarah Marx of HousingWire comments on the Redfin data, reporting that prices are still on an upward trend despite buyers backing out of deals more. The median home price jumped 3.5% year-over-year to $413,874 last month. The biggest jumps and losses were as follows:

• Lake County, Illinois (16.4%) 
• Newark, New Jersey (15.2%) 
• Camden, New Jersey (13.8%) 
• North Port (-8.2%)
• Austin, Texas (-6.5%) 
• Honolulu, Hawaii (-4.3%).

Builders

Robert Dietz of the National Association of Home Builders (NAHB) reports on the relationship between housing starts and builder confidence. Overall, housing starts are flatlining alongside a general downward trend of builder confidence.

Source: NAHB (November 2023)

“Single-family starts are down 10.6% year-to-date. Despite higher interest rates in October, the lack of existing home inventory supported demand for new construction in the fall. NAHB is forecasting improving conditions for single-family home building, as the 10-year Treasury rate has returned to near 4.5%, with an outright gain for single-family starts in 2024.”

In a second article, Dietz reports further on builder confidence, noting that high borrowing rates have kept builder confidence lower. Specifically, the NAHB/Wells Fargo Housing Market Index shows a fourth consecutive month of confidence drops, which has declined 22 points since this summer and is at its lowest level since December 2022.

This downward trend may be changing, according to Dietz: 

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months. In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”

Further, according to additional NAHB reporting, it was one of the best quarters ever for townhome construction. This more affordable housing asset saw a 16% jump in construction annually, the highest pace since 2007. 

Inflation update

According to Jeff Cox of CNBC, we saw the slowest pace of inflation last month since September 2021. Stocks rallied on the news, with the consumer price index remaining flat in October and slightly increasing to 3.2% from a year ago. Shelter costs rose 0.3% month-over-month; however, this was half the gain in September. 

Source: CNBC (November 2023)

Cox quotes Paul McCulley, former chief economist at Pimco and now an adjunct professor at Georgetown University, commenting on inflation’s shelter component: “This is a game changer…We’re having a day of rational exuberance, because the data clearly show what we’ve been waiting for for a long time, which is a crack in the shelter component.”

Fannie Mae reported on the inflation picture, highlighting that:

“Inflation data continued to cool broadly in line with our expectations. While headline inflation has been volatile due to large fluctuations in the price of oil, core prices are just 1.5 percent higher than they were six months ago, whereas compared to 12 months ago, core prices are 4.0 percent higher, pointing to meaningful more recent slowdown in underlying inflation. This measure should continue to slow as the CPI measures of rent and OER continue to approach more timely measures of rent increases on new leases, which show muted rent growth.”

Jiayi Xu of Realtor.com reports that interest rates dropped for the third week, falling to 7.44% for the 30-year fixed rate. Xu reports that although Powell wouldn’t rule out more rate hikes, the underlying data suggests we are done with the current rate hike cycle. As such, mortgage rates are likely to continue to decrease slowly as they have over the past few weeks.

Source: Realtor.com (November 2023)