US new homebuilding plummeted again in October as rapidly rising mortgage rates continue to cool demand and once scorching real estate market.
Starting housing fell 4.2% last month to an annual rate of 1.425 million units, according to new Commerce Department data released Thursday. This is above forecasts by Refinitiv economists for a pace of 1.410 million units.
Planning applications, which measure future construction, fell at an annual rate of 1.53 million units.
Permits for building single-family homes, which account for the largest share of residential construction, have also fallen to their lowest since the early months of the COVID-19 pandemic.
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“The housing market is coming off a euphoric run during the post-pandemic period of historically low interest rates,” said Jeffrey Roach, chief economist at LPL Financial. “The slowdown in housing activity doesn’t look all that bad compared to 2019. Rising borrowing costs and homebuilder hesitation could make the nationwide housing shortage worse in the near term if activity falls below below 2019 levels”.
The data comes a day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the 11th consecutive month to 33, marking the worst stretch for the housing market since the survey launched in 1985.
Any reading above 50 is considered positive; prior to this year, the indicator has not entered negative territory since 2012, barring a brief but steep decline in May 2020.
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The index is down to half of what it was just six months ago, when it was at 76. It hit a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time as home buyers american houses – flush with cash and eager for more space during the pandemic, they’ve started flocking to the suburbs.
“Higher interest rates have significantly weakened demand for new homes as buyer traffic becomes thinner,” said NAHB President Jerry Konter, a homebuilder and developer from Savannah, Georgia.
The interest rate sensitive housing market has started to cool off noticeably in recent months Federal reserve moves to tighten policy at fastest pace in three decades. Policy makers have already approved six outright interest rate hikes, including four 75 basis point hikes in June, July, September and November, and have shown no sign of pausing as they try to squeeze stubbornly high inflation.
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The average rate for a 30-year fixed loan fell to 6.61% in the week ending Nov. 17, sharply lower than the previous week’s 7.08%, according to recent data from mortgage lender Freddie Mac. However, it is significantly higher than just a year ago , when rates were at 2.98%.