Fewer new homes are being built across the country, despite desperate calls from the housing industry to build more. New-home starts plunged to the lowest level in more than two years in December, the U.S. Commerce Department reported Tuesday.
New-home construction dropped 11.2 percent in December and is now at the slowest pace of construction since September 2016. Housing starts have dropped 10.2 percent over the past year, with decreases in both single-family and apartment construction.
“Looking back, the December drop in housing production correlated with the peak increase in mortgage rates and corresponding decline in builder sentiment,” says Greg Ugalde, chairman of the National Association of Home Builders. “During that time, builders adopted a cautious wait-and-see approach as demonstrated in the rise of single-family and multifamily units that were permitted but not under construction.”
The housing market may get a boost from lower mortgage rates in recent weeks. The 30-year fixed-rate mortgage has been dropping, averaging 4.35 percent last week, according to Freddie Mac.
Single-family home building mostly stagnated last year. Builders have consistently blamed rising costs of construction materials, labor costs, and a shortage of buildable lots for curtailing construction.
Residential building permits, a gauge of future construction, eked out a 0.3 percent increase in December compared to November, reaching an annual pace of 1.326 million. (December saw 1.078 million starts.)
“Looking ahead, we expect single-family production will be relatively flat in 2019, and multifamily starts will level off as well,” says NAHB Chief Economist Robert Dietz. “The biggest challenge facing builders this year will be ongoing housing affordability concerns as they continue to grapple with a shortage of construction workers, a lack of buildable lots and excessive regulatory burdens.”