The numbers: Construction on new houses fell 4.2% in October as high mortgage rates scared off buyers and forced builders to scale back, a situation that’s likely to fester through 2023.
Housing starts slowed to an annual pace of 1.43 million last month from 1.49 million in September. That’s how many homes would be built in 2022 if construction took place at same rate over the entire year as it did in October.
Economists polled by MarketWatch had expected housing starts to register a 1.41 million rate after adjusting for the typical seasonal swings in demand.
New construction had hit a record 1.8 million in April before tapering off.
The number of permits, meanwhile, slipped 2.4% to a 1.53 million rate. That’s down sharply from a record 1.9 million last December.
Permits foreshadow how many houses are likely to be built in the months ahead assuming a stable real estate market. But a major surge in mortgage rates this year has depressed demand and forced builders to scale back plans.
Key details: Single-family home construction fell 6.1% to a 855,000 annual rate in October. Projects with five units or more registered a 556,000 rate, little changed from the prior month.
Housing starts are down 9% from a year ago, when mortgage rates briefly dipped below 3%.
Permits have fallen 10% from a year earlier.
Big picture: The highest mortgage rates in a few decades have choked off new construction and are likely to do so through the next year or more. The rate on a 30-year fixed mortgage recently topped 7%, more than double the year-ago rate.
While the U.S. has an acute need for more housing, fewer people can now afford to buy a home. Home prices are starting to come off record highs, but not by a lot.
Looking ahead: “Higher mortgage rates continue to exact a heavy toll on new construction,” said chief economist Richard Moody of Regions Financial.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open lower in Thursday trades.
