December 18, 2024

Housing starts declined 1.8% in November to 1,289 thousand which was a surprisingly weak performance after falling 3.2% in October and 1.7% in September.  The decline consisted of a 6.4% increase in single-family homes which was more than offset by a whopping 24.1% drop in the very volatile multi-family category.  The major rebuilding effort following the combo of Hurricanes Helene and Milton has apparently not yet gotten underway, but it soon should.

While starts remain weaker than expected, builder confidence has been climbing in recent months.  Homebuilders are confident that the change in power in Washington will result in significant regulatory relief for the industry.   However, builders are dealing with an extreme shortage of available lots, and local red tape which — at the moment — is retarding their willingness to boost the output of new homes and apartments.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should  decline from 6.8% currently to 5.8% by the end of next year..  Home prices may remain at roughly their current level as the shortage of available housing puts upward pressure on prices..  At the same time, consumer income will continue to climb as jobs are created and hourly earnings steadily climb.  As a result, housing affordability should increase somewhat as the year progresses.  A median-income family today has 5% more income than is required to purchase a median-priced home.  We believe that by the end of next year that same median-income earning family will have 15% more income than is required to purchase a median-priced home.  That should help.

Potential home buyers today cannot find an adequate supply of existing homes to purchase.  The supply of existing homes on the market has risen in recent months but it still remains low.  The problem is that current owners have been unwilling to trade a 3.0-3.5% mortgage rate for a 6.8% one.  But recent data suggest that they now feel they have waited long enough and are willing to pull the trigger and sell.

Building permits jumped 6.1% in November to 1,505 thousand after having declined 0.4% in October and 3.1% in September.   It is difficult for builders to find an adequate number of workers and available lots at affordable prices.  This will curtail the number of houses that builders are able to start. However, in our opinion, the housing sector has hit bottom and will increase slowly in the months ahead.  With permits in recent months consistently around 1,450 thousand, starts should be at roughly that same level — not their current level of 1,289 thousand.

We currently expect GDP growth of 2.5% growth in the fourth quarter and 2.9% in 2025..

Stephen Slifer

NumberNomics

Charleston, S.C.