September 19, 2023

Housing starts plunged by 11.3% in August to 1,283 thousand after having risen 2.0% in July.  But given the sharp rise in building permits (see below) it is clear that starts will not remain at this depressed level for long.  Starts tend to be one of the more volatile economic indicators.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should  rise only slightly to the 7.4% mark between now and yearend..  Home prices may also increase slightly  between  now and yearend.  But, 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 be roughly unchanged as the year progresses.

The recent pickup in housing earlier this year has been in the single-family category.   Potential home buyers cannot find an adequate supply of existing homes to purchase.  Their current owners are unwilling to trade a 3.0-3.5% mortgage rate for a 7.0% one.  Given the shortage of supply these buyers are turning to their friendly builder and seeking out new homes which are more readily available.

Building permits jumped 6.9% in August to 1,543 thousand after having risen 0.1% in July.   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 might actually want to start.

Given the increase in buyer interest for new homes, we believe that housing starts will rise slowly but steadily as we move throughout the balance of the year.

We currently expect 3.5% GDP growth in the third quarter and 1.7% GDP growth in the fourth quarter.

Stephen Slifer


Charleston, S.C.