February 16, 2024

Housing starts plunged 14.8% in January to 1,331 thousand after  having risen 3.3% in December as extremely cold and snowy conditions throughout much of the country in January took a toll.    But because building permits were relatively steady we do not view the January drop in starts as being long lasting.  We expect starts to climb gradually throughout 2024.

Furthermore, builder confidence has climbed in the past several months given the drop in mortgage rates.  Once again, this seems to lead to the conclusion that the drop in starts in January was weather-related and not an indication of renewed weakness in the  housing sector.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should  decline slightly from 6.7% currently to 6.25% by yearend..  Home prices may decline slightly as builders crank up the pace of production and more supply becomes available.  At the same time, consumer income will continue to climb as jobs are created and hourly earnings continue to climb.  As a result, housing affordability should increase sharply as the year progresses..  A median-income family today has about 8% less income than is required to purchase a median-priced home.  We believe that by the end of this year that same median-income earning family will have 25% more income than is required to purchase a median-priced home.

Potential home buyers today cannot find an adequate supply of existing homes to purchase.  In fact, the supply of existing homes on the market today is near a record lower level.  Realtors cannot sell what is not on the market.  The problem is that the current owners are unwilling to trade a 3.0-3.5% mortgage rate for a 6.7% one.  Given the shortage of supply these buyers are turning to their friendly builder and seeking out new homes which are more readily available.

New home sales have been edging their way upwards while existing homes continue to shrink.  As mortgage rates decline somewhat further, some current homeowners may finally choose to put their home on the market and existing home sales should rebound.

Building permits fell 1.5% in January to 1,470 thousand after having risen 1.8% in December  Permits appear to be inching their way higher.  If that is the case, starts should follow.  However, 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.  In our opinion, the housing sector has hit bottom and will continue to increase slowly in the months ahead.

We currently expect roughly 2.0% GDP growth in the first and second quarters of this year as businesses continue to create jobs and wages rise.

Stephen Slifer


Charleston, S.C.