Data released last Friday show new housing starts fell 18.7 percent in November from October as single-family home starts fell 4.1 percent and multifamily home starts fell almost 44 percent. Permits for future construction fared somewhat better, declining only 4.7 percent. Within the total, single-family permits increased 0.5 percent while multifamily permits fell about 16 percent. Though housing starts and permits tend to be quite volatile month to month, over the seven years since the recession ended, multifamily housing has recovered at a faster pace while the single-family sector rebounded at a slower pace. In both segments however, inventories have been relatively low, helping support prices.
With the recent rise in interest rates, on the short-term end from a Fed rate increase, and on the long-term end from rising yields following the Trump election victory, housing is likely to face a bit of a strengthening headwind. That headwind may remain mild if rates stabilize, but if rates were to continue to rise, then housing activity is likely to face a harder path for future growth. Rising rates can be an incentive for prospective buyers to decide quickly (in order to avoid even higher rates in the future), resulting in a temporary bump up in sales, but over longer periods, substantially higher interest rates are likely to lead to a weaker housing market.
