Most of the recent housing news has been dismal, with soaring home prices, rising mortgage rates and limited inventory putting the kibosh on potential home buyers.
But here’s some good news. Housing starts unexpectedly rose in March–0.3% from February to the highest level since 2006. That’s a seasonally-adjusted annual rate of 1.79 million. Apartment/condo buildings led the way.
Building permits also gained in March–0.4% from February to a seasonally adjusted annual rate of 1.87 million.
Rubeela Farooqi, chief U.S. economist at High Frequency Economics, offered a mixed take on homebuilding. “A lack of existing inventories should be positive for building activity,” she told Reuters.
“However, high input costs and shortages, of both labor and materials, remain headwinds for builders. Rising mortgage rates that crimp demand will also be a consideration for building activity going forward.”
Home builders are pessimistic. “Rapidly rising interest rates combined with ongoing home price increases and higher construction costs continue to take a toll on builder confidence and housing affordability,” the National Association of Home Builders said in a statement.
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The NAHB/Wells Fargo Housing Market Index of homebuilder confidence fell to a seven-month low in April.
“The housing market faces an inflection point, as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.
Home prices soared 19.2% in the 12 months through January, according to the S&P CoreLogic Case-Shiller Index.
Meanwhile, the 30-year fixed-rate mortgage averaged 5% in the week ended April 14, the highest since Feb. 11, 2011, according to mortgage agency Freddie Mac.
“As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Given soaring prices, some housing experts are concerned that things are getting out of control.
A report from researchers on the Dallas Federal Reserve Bank’s web site says they see evidence of a “brewing U.S. housing bubble.” They wrote, “There is growing concern that U.S. house prices are again becoming unhinged from fundamentals.”