It seems that builders are facing a cooling housing market, which is reflected in the decline of housing starts and permits in December. The U.S. Census Bureau reported that housing starts dropped 1.4% from the revised November estimate and 21.8% from December 2021, reaching 1.38 million. Additionally, housing permits issued in December fell 1.6% from November and 29.9% from a year ago, reaching 1.33 million (SAAR). However, it’s worth noting that despite the decline, there were more homes started and under construction in 2022 than any time since 2006, so there is a potential for more new options on the market soon.
One of the reasons for the decline in housing starts and permits is the increase in recession risk. Historically, housing starts have been an early warning sign of an oncoming recession, but the worst economic predictions for 2023 may not come to fruition. This is partly because the labor market is still performing well and a slew of other incoming economic data points to falling inflation.
Another reason for the decline is the loosening of financial conditions and falling inflation which have lowered building costs. Additionally, falling mortgage rates have also curbed the decline in home buying activity. As a result, homebuilder sentiment increased in December after a 12-month losing streak.
While housing starts and permits have dropped in December, the decline should not be seen as a disaster, but rather a reflection of a cooling housing market. However, the good news is that more homes were started and under construction in 2022 than any time since 2006, which could potentially lead to more new options on the market soon. Additionally, with mortgage rates on the decline, buying a home could become more affordable for many people.