New U.S. home construction slumped again in January to the lowest level since 2020 as elevated mortgage rates combined with pervasive inflation continued to cool demand.
Housing starts slid 4.5% last month to an annual rate of 1.31 million units, according to new Commerce Department data released on Thursday. That is below Refinitiv economists’ forecast for a pace of 1.35 million units.
Applications to build – which measures future construction – were little changed at an annualized rate of 1.34 million units. Permits for the construction of single-family homes, which account for the biggest share of homebuilding, dropped 1.8%.
ECONOMIST WHO CALLED 2008 HOUSING CRASH PREDICTS ANOTHER 15% DROP IN HOME PRICES
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose more than expected to 42, the highest reading since September. Any reading above 50 is considered positive; prior to 2022, the gauge has not entered negative territory since 2012, excluding a brief – but steep – drop in May 2020.
The index has fallen to half of what it was just one month ago, when it stood at 81, although it has increased from a low of 31. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers – flush with cash and eager for more space during the pandemic – started flocking to the suburbs.
The interest rate-sensitive housing market has borne the brunt of the Federal Reserve’s aggressive campaign to tighten policy and slow the economy.
Policymakers already lifted the benchmark federal funds rate eight consecutive times – well into restrictive territory – and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Still, demand has shown early signs of returning as mortgage rates continue to fall from a record high of 7.08% in November.
The average rate for a 30-year fixed mortgage dropped to 6.12% last week, according to data from mortgage lender Freddie Mac. However, that remains significantly higher than just one year ago, when rates hovered around 3.69%.