Housing Market Downturn Likely To Continue Through 2023
- Housing starts fell for the fifth straight month in January.
- The backlog of new construction remains near historical highs.
- PNC’s baseline forecast is for a 12% decline in house prices in 2023.
Housing starts declined for the fifth successive month in January as weak demand weighed on construction activity. Starts fell 4.5% in January to 1.309 million annualized units from 1.371 million in December. This was worse than consensus expectations for a 1.9% decline to 1.356 million units. Starts in December were revised slightly lower to 1.371 million from 1.382 million. Single family starts fell 4.3% on the month while multi-family starts fell 4.9%. Single-family starts were down 27.3% in January from a year earlier while multi-family starts were down 8.1%.
Residential construction permits, a leading economic indicator, were little changed in January, rising a small 0.1% to 1.339 million in January from 1.337 in December. Single-family permits fell 1.8% on the month while multi-family permits rose 2.5%. Building permits in January were 27.3% below the January 2022 rate of 1.841 million. Building completions rose 1.0% in January and were up 12.8% from January 2022. The backlog of new construction remains near historical highs. The number of projects authorized but not started is near the highest level since 1974.
The housing sector downturn continued in January amid high mortgage rates and elevated inflation. In a separate report released yesterday, homebuilder confidence as measured by the NAHB Market Index increased 7 points from January to 42 in February. This marked the second straight improvement in homebuilder confidence and the highest reading since September 2022. However, the index remains below 50 which indicates poor conditions for homebuilders. Strong economic data (retail sales and jobs report) from January mean the Fed is likely to raise the fed funds rate higher than previously expected to get inflation under control. This will put upward pressure on mortgage rates and slow housing demand even further this year. PNC’s baseline forecast is for a 12% decline in house prices in 2023.
The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.
