The US housing market saw a significant setback in March as single-family home construction took a nosedive. While the demand for new homes remains strong due to a shortage of existing homes for sale, rising mortgage rates are causing potential buyers to hold back.
According to a report from the Commerce Department, permits for future construction of single-family homes also fell to a five-month low, signaling a potential slowdown in the market.
After a period of recovery in the second half of 2023, following nine consecutive quarters of contraction, the housing market now appears to be losing momentum. Experts attribute this stall to waning expectations of lower interest rates among home builders.
The latest data from the Commerce Department’s Census Bureau revealed that single-family housing starts dropped by 12.4% in March, with the annual rate falling to 1.022 million units. Although this figure represents a 21.2% increase compared to the previous year, it still reflects a notable decline.
One key factor contributing to the sluggishness in the housing market is the limited supply of available homes. The fourth-quarter data showed that there were only 757,000 housing units on the market, well below pre-pandemic levels.
Despite these challenges, confidence among single-family home builders remains steady, according to a survey by the National Association of Home Builders (NAHB). However, buyers are showing reluctance as they wait to assess the direction of interest rates.
The average rate for a 30-year fixed-rate mortgage has edged up towards 7%, driven by positive reports on the labor market and inflation. This has led to speculation that the Federal Reserve may delay anticipated rate cuts this year, further impacting mortgage rates.
In March, overall housing starts saw a sharp decline of 14.7%, the largest drop since April 2020, while permits for future single-family home construction fell by 5.7%. These figures underscore the challenges facing the housing market as it grapples with supply shortages and rising mortgage rates.
While economists remain divided on the outlook for interest rates, the housing market will likely continue to face headwinds in the coming months. Addressing the supply-demand imbalance will be crucial to ensuring a sustainable recovery and fostering affordability in the housing market.
