Housing Market ‘In Free Fall’ As New Construction Plummets—Here’s When ‘Reset’ Could Cool Prices – Forbes

Housing Market ‘In Free Fall’ As New Construction Plummets—Here’s When ‘Reset’ Could Cool Prices – Forbes

Topline

New housing starts unexpectedly plunged much more than economists projected—and for a second straight month—in May, according to data released Thursday, adding to signs of an abrupt turnaround in the booming housing market.

“This is still the early stages of the housing rollover,” says one expert, predicting the coming … [+] months will bring steep declines in housing construction as the booming market “resets.”

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Key Facts

The number of housing starts, or ​​new houses on which construction started, plunged 14.4% to about 1.5 million last month from 1.8 million in April—sharply below economic projections calling for nearly 1.7 million starts, the Census Bureau reported Thursday.

Building permits also fell more than expected, coming in at less than 1.7 million in May despite expectations they would remain roughly flat from April at about 1.8 million.

In emailed comments Thursday, Pantheon Macro chief economist Ian Shepherdson attributed the sharper-than-expected decline to an “abrupt and rapid” drop in new-home sales facing builders, who “overbuilt” since early 2021 to capitalize on demand that’s now “in free fall” and must slow construction to prevent a big hit to profits.

“This is still the early stages of the housing rollover,” adds Shepherdson, predicting the next few months will bring further steep declines in housing construction as additional interest rate hikes make home buying more expensive and push demand even lower.

Home builder stocks took a hit after the data, with the S&P Homebuilders Select Industry Index, which includes home-manufacturing giants such as Masco and Owens Corning, plunging more than 4% Thursday, while the S&P 500 fell 3%.

One bright spot in the report: Home completions climbed to the highest level since 2007, which should help home price increases—clocking in at the quickest pace this century—slow from about 20% to the low single digits by the end of next year, says Comerica Bank chief economist Bill Adams.

Key Background

Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic, but signs of a slowdown have quickly emerged as the Federal Reserve embarks on its most aggressive interest-rate-hiking cycle in two decades. According to data released last month, pending home sales slid for the sixth consecutive month in April to the lowest level in nearly a decade, while new home sales plunged nearly 17% from March. More recently, the average interest rate on the popular 30-year fixed mortgage spiked 5.5% to more than 6.2% this week—the highest level since the 2008 financial crisis.

What To Watch For

The Fed’s Wednesday rate hike is “likely to accelerate the slowing of the housing market” and eliminate construction jobs, says Mace McCain, chief …….

Source: https://www.forbes.com/sites/jonathanponciano/2022/06/16/housing-market-in-free-fall-as-new-construction-plummets-heres-when-reset-could-cool-prices/