Housing Starts Forecast 2023

Housing Starts Forecast 2023

There are positive signals in the homebuilding realm. Following five consecutive months of declines, single-family construction starts in February rose 9.8%, and applications for building permits increased by 13.8% from the previous month, according to the U.S. Census Bureau and HUD.

The latest builder outlook data reflected optimism as well. The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, rose two points, from 42 to 44. This is the third month-over-month increase following 12 consecutive months of declines.

Even so, builder confidence is still low—50 or above means more builders see good conditions ahead—so there will need to be more consecutive upticks before we see a significant rebound in new construction. Also, the Federal Reserve isn’t helping matters with its ongoing federal funds rate hikes. At a semiannual hearing before the Senate Banking Committee, Federal Reserve Chair Jerome Powell addressed questions about the Fed’s aggressive monetary tightening policies in its efforts to rein in inflation.

In an exchange with Senator Raphael Warnock (D-Ga.), Powell acknowledged that raising the central bank interest rate increases borrowing costs for companies that develop new housing and makes financing and expanding production for suppliers more expensive. He also conceded that elevated fixed mortgage rates discourage homeowners with a low-rate fixed-rate mortgage from selling their homes. All of these circumstances put further strain on inventory.

The bottom line is that there really isn’t a likely scenario that leads to inventory levels approaching historically normal numbers in 2023, which means that prospective homebuyers are still going to have to work hard to find something to buy. 

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