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Homebuilders are pushing through inventory backlog

Fewer housing starts in 2022 led to an increase in housing completions

As the housing market slowed from its frenzied peak in 2022 due to soaring mortgage rates, homebuilders pulled back. An estimated of 1.533 million housing units were started in 2022, down 3.0% compared to 2021, according to a report released Thursday by U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Homebuilders closed out 2022 with an annual housing start rate of 1.382 million units in December, down 1.4% compared to November and down 21.8% year over year.

These decreases came even as single-family homebuilders started more projects in December. The single-family housing start rate rose 11.3% month over month to 909,000. Year over year, single family starts were still down 25.0%. The multifamily sector slowed on both a monthly and yearly basis, with the building pace falling to 463,000 units.

“Housing starts fell again in December, but there are hopeful signs that builders will see a boost in buyer traffic in the coming months and new housing construction may have bottomed,” Lisa Sturtevant, BrightMLS’ chief economist, said in a statement. “During the second half of 2022, the pace of new single-family housing starts decelerated quickly as mortgage rates escalated. Builders watched inventories rise as buyers canceled contracts and new orders dried up. To facilitate move-ins, builders were more likely to offer incentives rather than drop prices, hoping to wait out the downturn.”

Regionally, housing starts were down month over month in the South (-4.0%), Midwest (-37.4%), and West (-9.5%) but were up 135.6% Northeast. On a yearly basis, homebuilders’ housing starts were down significantly in all regions except the Northeast, which posted an annual gain of 50.4%.

While housing starts were down in 2022, housing completions posted a 3.8% annual gain, rising to an estimated annual rate of 1.392 million housing units. In December, completion were down 8.4% month over month, but up 6.4% compared to a year prior, hitting an annual pace of 1.411 million. On a monthly basis, both the single-family and multifamily sectors were down, but compared to a year ago the multifamily rate of 385,000 is up 25.8%.

“While the number of single-family homes under construction is stabilizing as builders cut production, multi-family construction continues to hit new records,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “Starts are exceeding completions and there are a record 926,000 multi-family units under construction. More multi-family supply may ultimately put some downward pressure on rents over the next year or so.”

Looking ahead, despite homebuilder confidence rising for the first time in a year in January, homebuilders – especially single-family homebuilders – are still pulling back. Building permits were issued at an annual rate of 1.33 million in December, down 1.6% from November and 29.9% from December 2021. On the single-family front, permits were down 34.7% year over year to a rate of 730,000, while on the multifamily front permits were down 21.8% year over year, but up 7.1% month over month.

“Homebuilder sentiment increased for the first time in a year in January due to lower mortgage rates, though general perceptions among builders remain poor. As mortgage rates moderate and with the spring season around the corner, it’s possible that the worst of the impact to sales is behind us,” Kushi said. “Builders still have a large backlog of single-family homes under construction. Builders will likely continue to focus on completing these existing projects, rather than starting new ones, until there is a meaningful and sustained increase in demand.”

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