Builders Still Aren't Constructing Enough Houses
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Key TakeawaysThe pace of new home construction slowed in September as high mortgage rates maintained their stranglehold on the housing market.Buyers and builders hope mortgage rates will fall in the coming months as more affordable financing will bring home ownership within the reach of more people.Forecasters expect rates to fall in the coming months as the Federal Reserve cuts its benchmark fed funds rate.The downward path of mortgage rates could be bumpy, as home loan rates have actually risen in the weeks since the Fed's rate cut in September.
Homebuilding continued at a relatively slow pace in September as builders waited for a boost from lower mortgage rates, which has yet to arrive.Builders broke ground on new homes in September at an annual rate of 1.35 million, the Census Bureau said Friday. That was down slightly from the rate of 1.36 million in August, and 1.36 million in September 2023. As recently as April 2022, builders were breaking ground at a rate of 1.82 million new homes per year. The September figure matched forecasts, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.Builders are not constructing enough houses to keep up with population growth. In 2022, 2.06 million households were formed, far more than the 1.6 million houses and apartment units that builders began to construct that year, according to an analysis by Realtor.com. Years of under-building since the Great Recession have left the U.S. with a persistent housing shortage that's helped drive up prices. At the same time, high mortgage rates are making homes even less affordable.Housing economists expect those high rates to come down in the coming year as the Federal Reserve reduces its benchmark fed funds rate, which they had held at a two-decade high to combat inflation. However, the downward path has been bumpy: the average rate offered for a 30-year mortgage rose to 6.44% this week, the highest since August, and well above the sub-3% rates available during the pandemic, according to Freddie Mac."U.S. home builders are in a holding period, awaiting further rate cuts to kick-start demand," Sal Guatieri, senior economist at BMO Capital Markets, wrote in a commentary. Read the original article on Investopedia.
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