Housing starts dropped for the third month in a row in November as the housing market continued to be in correction mode, the Commerce Department reported on Tuesday.
There were 1.4 million residential starts on an annualized basis, falling short of the 1.7 million that we estimate are needed to meet long-term demand. That was a decline of 0.5% from a month ago, and a 16.4% decline from a year ago.
The correction in the housing market has been driven by the steep rise in mortgage rates from 3% last year to 7% last month. Even though mortgage rates have recently dropped to 6%, they remain elevated compared to the 10 years leading up to the pandemic.
We expect the correction to continue for a bit longer. The housing market often bottoms out when the economy starts to climb out of a recession, which in our estimation will take place in the second half of next year.
The decline in starts came entirely from single-family homes, which fell by 4.1% on the month; multifamily homes posted a sizable 4.9% increase.
Building permits, a proxy for future housing starts, were aligned with our expectation, plunging by 11.2%. The decline came from both single-family and multifamily homes, suggesting further declines ahead.
Inside the report, completions increased by 10.8% on the month, continuing to pick up as builders shift their focus from starting new projects to finishing existing ones, a common sign of a market contraction.
