Home Prices and Mortgage Rates
The housing market has seen its fair share of ups and downs over the past couple of years. Home prices have surged, with the average price now up about 1% from last year and a staggering 16% from two years ago. This meteoric rise has placed homeownership increasingly out of reach for many potential buyers. Coupled with mortgage rates crossing the 7% mark, these factors have forced more buyers to the sidelines, opting to wait for more favorable conditions.
Single-Family Starts and Permit Activity
Single-family housing starts showed varying results. The silver lining comes from the fact that single-family permit activity is on the rise month over month in two important market regions for Belco. Notably, the West has shown a positive start number for the first time in three months, potentially signaling a stronger beginning to the new year. It’s worth noting that while this indicator is promising, areas like the Pacific Northwest will soon experience seasonal effects, while California and the Southwest enter prime building weather. Overall, both single-family indicators are up year over year, hinting that despite an impending slowdown, the pace remains more robust than the 2022 slump.
Multifamily Permit Activity and Builder Confidence
Multifamily permit activity surged significantly month over month but remains lower than the levels observed a year ago. This shift suggests a change in activity as potential buyers continue to hope for a more buyer friendly market. This certainly impacts builder confidence, as reflected in the Housing Market Index (HMI), which dropped another 5 points to 45. All three components of the index and all regions experienced declines. Additionally, the National Association of Realtors’ Pending Home Sales Index saw a substantial drop, hitting a low of 71.8 in 2023.
The NAHB Executive Forecast has remained relatively flat, with a slight increase in the total single-family starts for 2023. However, the second-quarter numbers were revised down, the third quarter saw a minor increase, and the fourth quarter remained flat. Notably for Belco and other lumber and trim manufacturers, total trim usage volume is down 9% from 2022. Products with higher exposure to new construction are expected to feel the slowdown more acutely, further supporting the decision to revise forecasts accordingly.
Despite housing market trends presenting hurdles, outlooks for the construction industry still hold promise. Though not as robust as previously forecasted, new construction growth is projected to average 5% per year for the next five years. However, initial 2024 estimates indicate a slower pace, with a sizable 1.8% increase. The NAHB echoes this sentiment, anticipating single-family starts to be 4.69% higher than 2023 but significantly lower than the double-digit growth numbers many experienced earlier in the year.
Experts remain confident that it’s not a question of ‘if’ but ‘when’ demand will return. Timing will be heavily dependent on the Federal Reserve’s actions. Similar sentiments are echoed across various channels, some of which are forecasting a potential resurgence in mid-2024.
Conclusion: Adjusting to Slower Growth
In conclusion, as housing market trends undergo a period of adjustment, builders are adapting to a slower pace of growth. It’s essential for industry professionals to manage inventories and adhere to forecasting methodologies to minimize risks, particularly as we approach the holiday season. While challenges lie ahead, opportunities are still on the horizon, and strategic planning will be key to success in the evolving housing market.