Picture this: construction crews all over the country, donning hardhats and wielding hammers, bringing the dream of homeownership to life. Single-family homes are popping up like daisies after a spring rainstorm, and the reasons are as clear as crystal blue skies. With mortgage rates on a downward trajectory and economists predicting even more relief in the coming year, homebuilders are seizing the opportunity to break ground like never before.
In November alone, builders set a blazing pace by starting construction on approximately 1.14 million single-family homes. That's an impressive 18% jump from October and a mind-boggling 42.2% increase from the same time last year. It's not just a temporary spike either; single-family housing starts have been on the rise consistently for the past three months, outpacing home completions for the first time in over a year.
However, despite this recent surge, construction of single-family homes is still on track for a second consecutive annual decline. Through the first 11 months of this year, starts have dipped by 7.2% compared to the same period in 2022. But fear not, for the winds of change are blowing, and they carry the whispers of lower mortgage rates. If these whispers materialize into reality, we can expect a flurry of homebuyers to step off the sidelines, providing builders with a solid reason to rev up their construction engines in the year ahead.
But wait, there's more! The plot thickens as we dive deeper into the housing market. The inventory of previously owned homes for sale is in short supply, stuck in a stranglehold caused by mortgage rates that are no match for the irresistible deals homeowners have already locked in. To put it in perspective, a staggering 67% of homeowners with mortgage loans enjoy the luxury of 30-year fixed-rate home loans at 5% or lower. Even with a recent dip, the average rate on a 30-year mortgage remains below 7%. No wonder these homeowners are reluctant to part ways with such a sweet deal.
Naturally, with mortgage rates projected to only slightly ease in the upcoming year, the likelihood of homeowners selling diminishes. And that, my friends, is another feather in the cap of homebuilders looking to expand their construction prowess in 2024. As Odeta Kushi, the deputy chief economist at First American, aptly points out, 'New supply of housing is needed to meet demand, especially in an environment where most existing homeowners are rate-locked in and unwilling to part with their low mortgage rate.'
The National Association of Home Builders (NAHB) joins the chorus of optimism, projecting a roughly 4% increase in single-family starts next year. Robert Dietz, the NAHB's chief economist, cites lower mortgage rates, slower economic growth, and decreasing inflation as the catalysts for this surge. On a more conservative note, Realtor.com foresees a more modest 0.4% increase in single-family starts.
But who could forget Lawrence Yun, the chief economist for the National Association of Realtors? He takes the stage with his impressive prediction that builders will initiate the construction of 1.04 million single-family homes next year. If his projections hold true, that would represent a remarkable 13% jump from the expected 920,000 starts in this year alone.
The stage is set, ladies and gentlemen. As we bid farewell to 2023 and welcome a new year, the construction industry is poised for grandeur. With mortgage rates looming below the highs of past decades, homebuilders are donning their capes and embracing the challenge of meeting the ever-growing demand for housing. So, let the hammers swing and the foundations rise; a new era of single-family homes is upon us, fueled by the creative visions of builders and the dreams of future homeowners.
