The number of homes being built in December plunged to the lowest level in more than two years, a possible sign that developers are anticipating fewer new houses to be sold this year.
The Commerce Department said Tuesday that housing starts fell 11.2 per cent in December from the previous month to a seasonally adjusted annual rate 1.08 million. This is the slowest pace of construction since September 2016.
Over the past 12 months, housing starts have tumbled 10.2 per cent. December’s decline occurred for single-family houses and apartment buildings. Builders have pulled back as higher prices have caused home sales to slump, suggesting that affordability challenges have caused the pool of would-be buyers and renters to dwindle.
“Artificially high prices have created affordability constraints, resulting in a situation where builders cannot deliver supply in scale,” said Brad Dillman, chief economist for the multi-family developer Cortland. “The result is that today’s housing market is undersupplied.”
The Commerce Department reported last month that new-home sales in November were 7.7 per cent lower than a year ago.
The housing market initially cooled last year as average, 30-year mortgage rates climbed to nearly 5 per cent. Home prices have consistently risen faster than wages and the inventory of homes listed for $250,000 or less is tight, suggesting a sluggish market ahead.
But the average mortgage has fallen since November, and that may help some Americans to become owners in 2019. Also, the pace of rising prices has slowed while wage growth has accelerated in recent months, which could also boost sales.
“Looking forward we may see a few more months of weak single-family starts before increasing confidence leads to increased production,” said Danielle Hale, chief economist for realtor.com.
Permits to build housing, an indicator of future activity, increased just 0.3 per cent in December. Among single-family houses, permits fell 2.2 per cent in December and 5.5 per cent from a year ago.
Housing starts were flat in the Northeast in December but fell in the Midwest, South and West.