The U.S. Census Bureau and the U.S. Department of Housing and Urban Development released their monthly residential construction report for October on Tuesday, revealing a downward slide in building permits, housing starts, and housing completions and prompting economists to speculate about the slowdown in the market.
Building permits were down 6 percent over the year and 0.6 percent over the month. Single-family permits also declined 0.6 percent over the month.
Housing starts fell 2.9 percent over the year but were up 1.5 percent over the month in October. Single-family housing starts were down 1.8 percent over the month.
Meanwhile, housing completions declined 6.5 percent over the year and 3.3 percent over the month.
“Today’s Census Bureau report for October sends a negative message to the housing market,” said Mark Fleming, Chief Economist at First American. He added that the decline in completions was an indication “that we are falling short of adding homes to the market in the short-term.”
However, he pointed out that “there was some modest help for home buyers as the inventory of homes under construction increased by 3.6 percent compared with a year ago, indicating additional new increases in the supply of homes are on the way.”
Tendayi Kapfidze, Chief Economist at LendingTree, attributed the “housing slow down” to increasing home prices, mortgage rates, and taxes, which have driven up the cost of homeownership.
“As there are fewer buyers at each price point, the appropriate market response is a slowdown in sales and an eventual easing in price momentum,” Kapfidze said. “Builders also face additional pressure from material and labor costs.”
Danielle Hale, Chief Economist at Realtor.com, also noted the link between today’s report and rising prices and mortgage rates, saying, “Rising home prices and rising mortgage rates have created high hurdles for homebuyers while cost increases make it difficult for builders to deliver homes at the price points that are most in-demand. The result has been a stalemate between buyers and sellers, with fewer transactions than we saw a year ago.”
She anticipates that “starts could slip further if builders believe the consumer pause will continue and they adjust production accordingly.”
Despite the slip in the market in October, Kapfidze did not find cause for concern in the Tuesday report. “We do not see the housing market as a risk to the broader economy.”
In fact, Kapfidze said the backward slide could be healthy for the market. “When we look at prior housing cycles, continued acceleration in home sales and prices would have to come at the cost of increasing leverage; this is how we got in trouble before. Had the market slowed in an orderly fashion in 2003/2004, we may have saved the economy from the woes unleashed later in the decade.”