US Residential Construction Market Trends

The United States homebuilders were a major beneficiary of the Covid economy. Record low-interest rates, combined with surging demand from consumers looking for more living space, caused a run on housing unlike most had ever seen before. Home prices surged over 40% in just two years, and homebuilders couldn't meet the orders fast enough. They even slowed sales just to keep pace. However, this growth declined at the end of 2022. Housing starts for single-family homes dropped nearly 19% year over year in September 2022, according to the U.S. Census. Building permits, which are an indicator of future construction, fell 17%. PulteGroup, one of the nation's largest homebuilders, reported its cancelation rate jumped from 15% in the second quarter of this year to 24% in the third. In Q2 2022, single-family housing starts were still up 10% year over year. That was just before mortgage rates really started to jump quickly. To go from a 10% annual gain in construction to a 19% drop in that time frame is a historically sharp turn. While sales of newly built homes are falling, prices are still higher compared with a year ago. Much of that has to do with still-inflated prices for labor and materials. Part of the price strength may just be indicative of which homes are selling, namely the more expensive ones. But that may change soon, as well.

Sales of newly built homes dropped below pre-pandemic levels in September 2022, and cancelations are now double what they were a year ago, according to the National Association of Home Builders. Construction on new United States homes fell a seasonally adjusted 0.5% in November to 1.43 million. The drop in construction on homes follows the decline in October 2022 when housing starts also fell by 2.1%. The annual rate of total housing starts fell from 16.4% in 2021. Building permits for new homes fell 11.2% to 1.34 million in November 2022. Permits for single-family homes fell 7.1% in November 2022, while permits in buildings with at least five units plunged by 17.9%. A big reason for this is mortgage rates that are still elevated, keeping buyer demand low and builders gloomy. Rates have surpassed the 7% mark and builders have been offering incentives to lure buyers, but home buyers are barely returning to the market. Homebuilders say 2023 is going to bring an even sharper downturn in the market, as high-interest rates scare away buyers.