Residential Construction Market - Still Uncertain
Over the summer, analysts monitoring the residential housing market began to adjust their forecasts for the year. Some of the extreme changes predicted in January have not been realized. Housing prices, for example, have declined, but not as much as many predicted. Overall, the housing market remains challenged due to high interest rates and constrained housing inventory.
Interest rates will continue to be a drag on residential construction, negatively impacting consumers seeking new mortgages, developers looking to buy land and builders taking out new construction loans. The Federal Reserve is expected to moderate their rate hikes for the remainder of the year. This should have a positive impact on mortgage rates, although the 30-year fixed mortgage rate is still hovering between 6-7%. High mortgage rates not only make it difficult for first-time homebuyers to purchase a house but also deter existing homeowners from selling and, subsequently, losing an existing low rate.
Housing inventories also remain low. Earlier in the year, single-family construction starts were increasing for a four-month period. In July, however, the Census Bureau reported declines in building permits, housing starts and housing completions nationally. Despite the negative drag, there are some positive forces at play. Because of the lack of resale inventory, the demand for new construction continues to rise. In recent surveys, builders in the Northeast and South felt positive about their markets.
Despite the headwinds, there are opportunities across the US if you look at the state and local data. Take advantage of some of the tools provided by the Census Bureau. Large states, like Texas and Florida, for example, still dominate with their sheer number of housing building permits, but their growth rates have dipped in the last year. Georgia, Illinois and Connecticut, have seen a growth in building permits over the same period. The data becomes more interesting at the local level. Many metro areas across the US have seen positive growth as well. Cities like DC, Atlanta and Tampa have seen a dramatic increase in housing permits, but smaller metro areas like Akron, OH, Sioux Falls, SD, and Salem, OR have also done well.