It’s Getting Tougher to Get a Brand-New Home

November 21, 2018

The rise of housing affordability concerns is sparking a slowdown in new-home construction. Single-family housing starts fell 1.8 percent in October compared to the previous month, the U.S. Commerce Department reported Tuesday.

"This month's decrease in single-family starts isn't a surprise given the drop in our builder confidence index," says Randy Noel, chairman of the National Association of Home Builders. "Builders are showing caution as mounting housing affordability concerns are forcing some consumers to delay making a home purchase.”

Construction workers examining a wall.

Guilherme Cunha - Unsplash

Rising mortgage rates and home prices continue to outstrip disposable income, UBS analysts wrote in a recent note. “Housing affordability has dropped notably since peaking in 2012,” UBS analysts say. However, on a historic basis, housing does remain relatively affordable nevertheless. A strong economy has UBS analysts unsure why such a slowdown is occurring in housing, but they predict the real estate market will stay weaker through at least the first part of next year.

“If you're looking for a new, single-family home, the news this morning wasn't good,” Robert Frick, corporate economist with the Navy Federal Credit Union, told HousingWire about the latest new-home numbers. “Builders are seeing a turn in the market for new homes and are less likely to build.”

Single-family housing starts began the year strong but weakened over the summer and are remaining soft, says Robert Dietz, the NAHB’s chief economist. “Despite this softness, 2018 construction volume is set to be the best since the downturn,” Dietz says. “A growing economy and positive demographic tailwinds are supporting housing demand as interest rates rise. However, policymakers should take note of the November decline in builder confidence as a sign that housing affordability conditions will weigh on the housing market going forward."

Overall, construction in the new-home market did eke out a 1.5 percent increase in October, due to an uptick in multifamily housing starts, which include apartment buildings and condos. Multifamily starts rose 10.3 percent month over month in October. As such, housing starts were 5.6 percent higher than a year ago.

But builders remained concerned. Permits, a gauge of future housing production, registered a 0.6 percent drop in October to 1.26 million. Single-family permits dropped 0.6 percent, while multifamily permits decreased 0.5 percent.

Regionally, combined single-family and multifamily housing starts were strongest in October in the West, rising 13.5 percent month over month, and by 5.5 percent in the South, the Commerce Department reports. However, housing starts dropped 0.6 percent in the Midwest and by 4.8 percent in the Northeast last month.