The numbers: Construction of new U.S. homes fell 14.8% in January as home builders scaled back new projects.
The pace of construction slowed as builders curtailed their activity amid wintry weather in the U.S. in January.
Housing starts fell to a 1.33 million annual pace from 1.56 million in December, the government said Friday. That’s how many houses would be built over an entire year if construction took place at the same rate every month as it did in January.
Housing starts fell to the lowest level since August 2023.
The drop in January was the sharpest since April 2020, during the coronavirus pandemic, when starts fell by nearly 27%. Not including that pandemic drop, housing starts fell by the most since 2015.
The data fell short of expectations on Wall Street, where the expected rate was 1.45 million. The numbers are seasonally adjusted. . . .
Of course, this is a bad sign for the short-term economy. (Signals a slowdown)
On a broader scale there are lots of homes,
(Homes per capita below)
But in recent years we have been forming more and more households, (I dunno. Divorce? Kids finally moving out of the basement? whatever)
Below is total housing/total # of households
no one can afford a house…
the new American dream, pool your money and live in a commune
or save your money, move to California and live on the street
free government cheese and needles
Not with Interest rates at 6.77%
Which is at the bottom edge of the normal range.
The US has been providing, temporary, short-term, stop-gap, low-rates for so long many have forgotten what normal rates are.
Hint:
When every bank and investor in the world says “Hell no I won’t give that mortgage unless the government immediately swoops in and buys it from me,” then rates are artificially low, and have nothing to do with the free market.
It is (or was) the new normal. Individual spending habits morphed to take advantage of those rates. Now that things are moving back to an old normal, people are getting blindsided by it.
I remember for much of the time I was growing up, bank savings account rates were generally 5%. And my parents had a mortgage in the 6-7% range. Just as I hit adulthood, got married, and we bought a house, the Carter misery index was in full swing. We considered ourselves lucky that our first mortgage was 14.25%. Peers were paying upwards of 17% for their mortgage. The next house had a mortgage of 10-point-something %, and when we moved into our final home, we got a rate in the 6% range. (Been here 35 years. It’s paid off now.)
Society expects 2- and 3% mortgages now. It’s gonna take a long time for that expectation to wear off.
As for houses being expensive, house prices generally follow an overall upward slope. (Overall. Of course there are dips too.)
Someone who wants a house can get one – if they want. Maybe they have to lower their expectations regarding size and location. Maybe they have to readjust their spending habits away from the “new normal” paradigm. Maybe they need to moonlight a second job to accumulate the buying power. Maybe they can take in someone who rents the basement for a while. Maybe, maybe, maybe… There are countless ways to make it work.
Or they can complain. And pay someone else’s mortgage by renting from them.
Prior to 2009 a bank would give you a mortgage at a given rate if:
-they could resell it to the free market,
-or if they could resell it to Fannie, or Freddie, who would resell it to the free market
But then the Fed said in effect:
“Capitalism is stupid and our elected government intervention in it is too small. so
in order to stabilize prices we are gonna start buying them.”
They then abandoned the long held doctrine of maintaining neutrality (e.g. not favoring autos and steel, not favoring housing, not favoring green industry, not favoring black-owned enterprise etc.-- all such “favoritism” is to be left to an elected Congress) and began buying mortgages at a break-neck pace.
Importantly,
the money the Fed uses to buy those mortgages does come from taxes or deficits nor from selling lemonade or hoagies or whatever. That and precisely that is “the Fed printing money.” The Fed electronically printed money out of nowhere and used it for its own mortgage funding scheme.
How big was it? Well in a few short years the fed went from owning 0 percent of all mortgages to owning 35% of all mortgages. (For that to happen the Fed musta been buying 50, 60, 70% of all the new mortgages issued.)
.
.
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It is absolutely horrendous that the Fed did this and anyone who, for a short time received a increase in home value is not entitled to keep it permanently. The Fed should rapidly sell-off 100% of all the mortgages it bought and if people miss their window to cash out, oh well. You got years in a nice house at a very low price. and you had plenty of opportunity to cash out. Let’s end welfare for the upper middle-class!
@Gaius i always enjoy your economic posts. Its obvious you put a lot of work into them and they are always educational and informative.
Just felt like giving you a shout out.
Thank you.
Ha! You should have seen interest rates in the 80s. The post by Gaius following yours pretty much confirms it. Luckily my parents already owned a house. If I remember correctly, my parents would have paid 180k on a 60k mortgage after 30 years. That’s nuts.
I got lucky to buy when I did. I had 20% on a 187k house, at around 7% in 2000. Refinanced to 4.7% later on. Now this little house is selling for 550k. I can move wherever I want. But I don’t see how anyone can buy a house now that doesn’t already own a house.
Well.
Median Sales price of homes is plunging. (blue line)
I wonder what that will mean for average price of resale homes. (red line)
