Housing Market
October housing starts fell 3.1%, driven by single-family declines. Builder sentiment improved, while demand for new homes remains strong despite rising mortgage rates and ongoing challenges like high construction costs and labour shortages.
Housing starts in October fell short of expectations, with a seasonally adjusted annual rate of 1.311 million, marking a 3.1% decrease from the previous month. This decline was largely driven by a 7% drop in single-family housing starts. However, builder sentiment rose to its highest level in seven months in November, though it remains below the neutral threshold, indicating cautious optimism. Single-family permits, a key indicator for future housing starts, increased by 0.5% compared to the previous month. Despite the broader negative sentiment, builders are becoming more confident in selling newly constructed homes, with sales expectations for the next six months reaching their highest point since April 2022.
Demand for new homes remains strong, contrasting with weaker sales of existing homes. Builders benefit from incentives and increased inventory, bolstering new home sales. However, the rise in mortgage rates since October—driven by stronger economic data and hawkish signals from the Fed—presents a potential challenge to the broader housing market recovery. Builders continue to face obstacles such as high construction costs and labour shortages.
In the existing home market, sales increased by 3.4% in October, with gains seen across all regions. Both single-family home sales and condo/co-op sales rose. The median price of a used home in October reached $407,200, slightly up from the previous month’s $406,700, reflecting a 4.0% year-over-year price increase. While sales rebounded, tight inventory and high prices remain persistent challenges. The inventory of existing homes rose by 5.5%, but it remains limited, with only a 4.2-month supply at the current sales pace.
We anticipate that the housing market may begin to recover in Q1 or Q2 of 2025. We expect single-family home construction to grow steadily, supported by moderate declines in financing costs for both builders and buyers, as well as a continued shortage of existing homes due to the mortgage rate lock-in effect.