Better times are around the corner for home builders, according to the industry’s trade group. It won’t show up in the data just yet: new-home construction is expected to have dropped in October, economists say.
Housing starts and permits, two monthly government indicators of home construction activity, are expected Friday at 8:30 a.m. Both are estimated to have slipped as higher home buying costs pressured prospective buyers.
Buyers this year have been squeezed by rising housing costs, with one daily measure of the 30-year fixed rate mortgage having scraped 8% last month for the first time in more than two decades. With rising mortgage rates and high home prices relative to incomes, the housing market hasn’t been as unaffordable since the mid-80s, according to ICE Mortgage Technology.
Economists expect housing starts, a measure of the beginning of construction on new homes, to fall to a seasonally adjusted annual rate of about 1.35 million in October, down from roughly 1.36 million in September, according to FactSet. Permits, which are also called authorizations and are an indicator of future starts, are similarly expected to decline to a seasonally adjusted annual rate of 1.45 million, from 1.47 million the month prior.
Higher mortgage rates have weighed on builders and buyers alike. The National Association of Home Builders’ monthly gauge measuring industry sentiment slid in November to its lowest level since late 2022, the trade group said Thursday. And applications for home purchase loans earlier this year slid to the lowest level since 1995, the Mortgage Bankers Association said.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” Alicia Huey, the trade group’s chairman, said in a statement. Higher short-term rates have additionally added to home builder financing headwinds, she said.
Builders remain overall pessimistic, according to the index reading—but recent declines in the 10-year Treasury yield suggest better days are ahead, said Robert Dietz, the trade group’s chief economist. “Recent macroeconomic data point to improving conditions for home construction in the coming months,” Dietz said. “Given the lack of existing home inventory, somewhat lower mortgage rates will price in housing demand and likely set the stage for improved builder views of market conditions in December.”
That’s not news to investors in home builders, who bought shares in recent weeks following drops in the 10-year Treasury yield, with which mortgage rates often move. Mortgage rates measured weekly by
Freddie Mac
declined to 7.44% on Thursday, the lowest 30-year fixed rate since the end of September and the third consecutive week-over-week decline. Home loan applications have increased as mortgage rates have fallen—though the index measuring purchase loan applications remains lower than one year ago.
The
SPDR S&P Homebuilders
ETF (ticker: XHB) and the
iShares U.S. Home Construction
ETF (ITB), two exchange-traded funds tracking the home builders and related industries, were trading on Thursday at levels about 5.4% and 3.6% below their record highs.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
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