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A Building Problem for America’s Housing Market

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It’s hard to build if you’re not sure they’re coming.

So American homebuilders have decided to slow down. The Department of Commerce on Wednesday reported: construction has started Last month’s 1.439 million homes fell 7.7% year-on-year on a seasonally adjusted annual rate. The drop was even more severe when excluding multi-family starts, which could fluctuate from month to month. Annualized single-family starts were 892,000, down 18.5% year-on-year.

Mortgage rates have skyrocketed, placing severe constraints on housing affordability. The average interest rate for a 30-year fixed mortgage was 6.1% last month, according to the .

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Monthly payments for loans of the same size are more than 40% higher, compared to 2.9% the previous year. Freddie Mac’s latest figure for mortgage rates is 6.9%, and the crunch is getting worse.

Builders’ ability to sell homes may not be as constrained as rising mortgage rates seem to imply. The job market continues to perform well, allowing more people to form new households.America’s Prolonged housing shortage— Freddie Mac estimates that at the end of 2020, the country will have 3.8 million homes short of what it needs.

However, the stock market doesn’t think so. The popular homebuilder exchange-traded fund, which has doubled his performance in 2020-2021 on the open market, is down about 35% year-to-date.

And why risk it? The Federal Reserve (Fed) is looking to cool the job market as part of its efforts to keep inflation down. The risk is doing the job too well and triggering a wave of layoffs. Investors are clearly worried.

Additionally, builders already have a number of homes in the pipeline. Wednesday’s report put the seasonally adjusted 800,000 Detached house under construction Last month compared to 531,000 in February 2020, the month before the pandemic hit.

The danger is that in the long run, exiting builders will only exacerbate the housing shortage. Ultimately, it may only put upward pressure on prices, rents, and ultimately inflation. In a sad irony, the Fed’s actions may only make America’s housing problem worse rather than better.

Housing is one of the most important categories when tracking inflation, but it is also one of the most complex to measure. WSJ’s David Harrison explains how the Shelter Index is calculated and why it’s clouding the Fed’s inflation outlook.Illustrated by Laura Kammerman

Write a letter to Justin Rahart [email protected]

Fix and Amplify
Annualized single-family starts were 892,000, down 18.5% year-on-year. An earlier version of this article incorrectly stated this number to be 892,00 units. (Corrected on October 19)

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