Deterioration Continues As Cratering New Home Construction Threatens To Intensify Shortage

The number of housing starts, or ​​new houses on which construction has started, plunged 9% from a year ago in October, while building permits fell 10% to 1.5 million, the Census Bureau reported Thursday.

Though not as weak as expected, housing starts and permits last month “continue to fall rapidly,” UBS economist Samuel Coffin said in a note to clients after the report, pointing out the overall decline shows ongoing deterioration in the housing market despite Hurricane Ian having a milder-than-projected impact on construction in the South.

The decline in starts last month has pushed construction down 21% from a peak in April, says Pantheon Macro chief economist Ian Shepherdson, positing that “the bulk of the drop is over, but recovery is a long way off” and construction may not pick up until late next year.

The number of homes on the market has grown amid the collapse in demand, but in emailed comments, Lawrence Yun, chief economist for the National Association of Realtors, said new listings are lower compared to the same period one year ago and that housing inventory overall remains near “historic lows.”

“That means once the gate opens a bit for home buyers, we could again face a housing shortage,” says Yun, adding that mortgage rates are already falling from the peak levels of last month—to 6.9% last week from a peak of nearly 7.2%—allowing more home buyers to qualify for a mortgage and potentially spurring some demand.

Given the relatively small number of homes under construction, NerdWallet’s Kate Wood says builders could find themselves scrambling to meet demand if interest rates “significantly fall”—fueling a shortage and potentially driving up home prices that are already at record highs.