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New Construction Mixed in January as Permits Up Slightly While Starts Fall

The housing market continues to struggle ahead of the spring buying season.

 

By Tim Smart

Feb. 16, 2023, at 9:31 a.m.

The market for new homes remains caught in a vise of high prices and elevated mortgage rates, data from the Census Bureau and Department of Housing and Urban Development showed on Thursday.  

In January, building permits rose 0.1% from a month earlier while housing starts fell 4.5% from a month earlier. Permits are down 27.3% from a year ago and starts are off by 21.4%. 

“No surprise here: housing starts and building permits remain low. High mortgage rates and home prices should continue to weigh on activity,” Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, tweeted.

 

The housing market did get a boost on Wednesday when the National Association of Homebuilders released its monthly survey showing that sentiment improved in February by the highest amount in a decade. 

“Even as the Federal Reserve continues to tighten monetary policy conditions forecasts indicate that the housing market has passed peak mortgage rates for this cycle,” said Robert Dietz, the association’s chief economist. “And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.”

 

While financing costs are still higher than a year ago, the recent drop in rates and warmer January weather have led industry officials to become cautiously optimistic about the coming spring selling season. But with bond yields and other borrowing rates rising in the past few days after several reports showed inflation still sticky and economic growth better than expected, the market faces some stiff headwinds.

In response, builders have been providing incentives to prospective buyers from assistance with closing costs to discounts on extras. 

“Homebuilder sentiment increased for the second month in a row in February, with all three components of the index – current single-family home sales, traffic of prospective buyers, and future sales expectations – increasing,” Odeta Kushi, deputy chief economist at title insurer First American. “Conditions are still considered “poor” overall, but the improvement signals that builders are feeling cautiously optimistic.” 

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