Decline in Housing Continued in January

By at 16 February, 2023, 5:12 pm

by Raymond J. Keating –

The residential housing industry continued its slide in January, according to the latest report from the U.S. Census Bureau.

Housing starts came in at a seasonally adjusted annual rate of 1,309,000, which was down by 4.5 percent versus December, and 21.4 percent below the year earlier level.

Meanwhile, housing permits, an estimate of future housing starts, came in at 1,339,000. That was essentially unchanged from December (+0.1 percent), and down by 27.3 percent compared to a year earlier.

As noted in the following two charts, both housing starts and permits have declined dramatically since early 2022.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

That, of course, has the seal of approval from the Federal Reserve, led by Jay Powell, which is set on undermining the economy, including housing, in order to fight inflation. Given that inflation is about too much money chasing too few goods, working to reduce the production of goods and services is counter-productive. That should be obvious, but given pervasive muddled thinking on inflation, that is not the case.

Meanwhile, in the National Association of Home Builders’ latest read on builder confidence, it was reported that the group’s index rose for the second consecutive month, and reached the highest level since September. At the same time, however, the latest reading of 42 on the index remained well below the breakeven level of 50.

NAHB reported:

“The average 30-year fixed rate mortgage rate peaked at 7.08% in October, according to Freddie Mac. Although rates declined to approximately 6.1% at the start of February, the 10-year Treasury rate has moved up more than 30 basis points during the past two weeks, indicating an increase for mortgage rates lies ahead.”

The NAHB also highlighted the need to reduce regulatory burdens:

“Noting that the most challenging part of the home building market remains construction of entry-level homes,” NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, AL, “called on policymakers to ‘help by reducing the cost of developing lots and building homes via regulatory reform.’”

NAHB Chief Economist Robert Dietz offered the following outlook:

“Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.”

Housing Sector is Dominated by Small Businesses

Finally, when talking about housing, it must be understood that this is an industry dominated by small businesses. For example, 97.3 percent of employer firms in residential building construction have fewer than 20 employees.

In the end, sound tax and regulatory policies at the local, state and federal levels, along with policies advancing free trade and price stability, will make a real difference for housing, and therefore, for small business.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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