Key facts
- New residential construction decreased by 12.4% in July.
- Single-family housing starts hit their lowest point since 2022.
- The 30-year mortgage rate remains stubbornly high, only moderately down from its October 2023 peak.
- Home prices have shown a consistent upward trend since the COVID-19 pandemic.
- Capital Economics forecasts the slowest year for home sales since 2011 and predicts mortgage rates above 6% for two more years.
- Home Depot noted that 'frozen housing conditions' are affecting large home projects.
The U.S. housing market is experiencing a prolonged period of difficulty for potential buyers, contrary to earlier expectations of normalization and increased affordability. Data released in July showed a significant 12.4% drop in new residential construction, with single-family housing starts falling to their slowest pace since 2022.
This downturn is largely attributed to persistently high mortgage rates. The 30-year mortgage rate, while down from its October 2023 peak of 7.8%, remains far above the COVID-era low of 2.7% and has been impacted by factors like rising oil prices and inflation fears. Compounding the issue, home prices have continued to climb steadily since their pandemic-era lows.
These combined headwinds have led macro research firm Capital Economics to forecast the slowest year for home sales since 2011. The firm also predicts that mortgage rates will remain above 6% for at least the next two years, dashing hopes for near-term relief.
The housing market's stagnation is also affecting related sectors, such as home improvement. Home Depot's CFO acknowledged that 'frozen housing conditions' are impacting large-scale home projects, typically associated with new homebuyers. The ongoing slowdown in construction risks further exacerbating affordability issues by limiting housing supply and potentially driving prices higher.