1 Big Thing: U.S. housing starts plummeted 11% in August, reaching their lowest level since June 2020.
Why it matters: This sharp decline is not just a statistical drop; it’s further evidence that the American housing market is facing severe headwinds. Limited housing supply keeps prices inflated, even as demand dwindles, indicating a deeper malfunction in the housing ecosystem.
- The scarcity of homes is a significant reason prices remain high.
- Delays from builders amplify inflationary pressures.
- The Federal Reserve may need to sustain higher interest rates, causing a ripple effect with rising Treasury yields.
But, but, but: It’s not just about supply. The Federal Reserve’s rigorous interest rate increases over the past year have tightened the squeeze. The NIMBY (Not In My Back Yard) movement’s war on new housing developments has played a significant factor.
Behind the numbers: Higher interest rates over the past year have put a stranglehold on the housing market.
- Potential buyers face sticker shock with steeper borrowing costs.
- Current homeowners are reluctant to list their properties, preferring to stick to their older, lower interest rates.
The result: A housing market stuck in gridlock, where affordability seems elusive unless there’s a significant rollback in mortgage rates and a shift towards progressive zoning reforms.
By the numbers: Over the past year, the Fed has raised rates by 525 basis points to rein in inflation. This has catapulted short-term rates to levels not seen since 2001.
The silver lining: The apartment construction sector seems to be flourishing. New data suggests the U.S. is on pace to witness the highest apartment construction in 50 years.
- Approximately 461,000 units are projected to be completed this year.
- During the pandemic, 1.2 million units hit the market, easing the rapid growth of rents nationwide.
- Yet, this boom isn’t uniform. A vast majority of these apartments are concentrated in 20 major metro areas, where around 41% of the country’s renters reside, according to a RentCafe report using data from Yardi Matrix.