Insights into Single-Family Housing Permits Amidst Changing Mortgage Rates

Dive into the dance between single-family housing permits, mortgage rates, and economic projections...

The number of single-family building permits in the U.S. plateaued in late last year and early 2024 as mortgage interest rates stopped increasing with the average rate around a 20-year high of 7%, according to the latest statistics from the Federal Reserve Bank of St. Louis.

The home building market is particularly important to lumber and other wood markets. Many other products like furniture are impacted by new home purchases.

The National Association of Homebuilders expressed guarded optimism for single-family housing starts in 2024: “While higher interest rates pushed single-family starts down in 2022 and 2023, production should move on a gradual upward path in 2024 as the Federal Reserve is on track to cut rates during the second half of the year with inflation slowing, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas today.”

A modest cut of interest rates has been projected but has yet to be assured by the Federal Reserve Board for the second half of 2024.

“While the Fed’s fight against inflation is building progress, the lingering inflation challenge is housing inflation,” said NAHB Chief Economist Robert Dietz. “Shelter inflation—rent and homeownership costs—are still rising at a 5.4% rate, and for the past year, more than half of overall inflation in the economy has been sheltered inflation. The only way to tame shelter inflation, and get overall inflation lower, is to build more housing.”

House affordability was the subject of research by the Harvard University Joint Center for Housing Studies, which announced in January that compared home prices to household income in markets across the United States. On average the median house sale price was 5.6 times the average household income in 2022 (a large jump from 4.1 times in 2019).

However, there are wide geographic variations, with nearly all cities in the Lake States in a more normal ratio of affordability. Only Madison in the Lake States (Michigan, Minnesota, and Wisconsin) had a ratio above 5. Meanwhile, Wausau, Fond du Lac, and Saginaw all had home price ratios to income below 3. In marked contrast, the least affordable prices were in California coastal cities, Hawaii, and Naples, Florida, where the median house price was at least 10 times the annual household income.

Meanwhile, multi-family building permit activity has dropped markedly as 2023 ended. The number of permits for building of five or more units has dropped by over 35%. Multi-family construction had somewhat offset the decline in single-family home construction in 2021 and 2022.

With a nationwide shortage of roughly 1.5 million housing units, increasing the nation’s housing supply will help tame inflation, the NAHB said.

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