- Housing starts rose by almost 10% in February compared to January.
- While additional inventory could help cool the housing market off, buyers may not see relief until later in the year or 2024.
One big reason 2023 has been such a tough time to buy a home is that the broad real estate market has continued to lack inventory. And any time there’s not enough inventory to go around, it has the potential to drive home prices up.
In fact, not only are home prices still elevated on a national scale, but mortgage rates are sitting at much higher levels than they were a year ago. That’s created a major affordability problem for buyers — especially first-time home buyers who don’t have equity in an existing home to tap.
In February, though, housing starts rose by 9.8% compared to where they sat in January, according to data from the Census Bureau. Housing starts represent new construction, and these days, the more of it we have, the better things start to look for buyers.
But while housing starts picked up nicely in February compared to a month prior, they were still down 18.4% from February 2022. Also, while an uptick in housing starts is a positive thing, we may not see an actual impact on the housing market until later this year or even 2024.
A delayed benefit
The U.S. housing market could use further cooling, especially since it’s gotten so expensive to take out a mortgage. And what’s really needed to make that happen is additional real estate inventory.
As of the end of February, there were only 980,000 available housing units for sale on a national level, according to the National Association of Realtors. That represents a mere 2.6-month supply of homes.
However, it commonly takes a minimum of a 4-month supply of homes to equalize the housing market. And in many cases, it really isn’t until we get to a 6-month supply where there’s enough inventory to fully meet buyer demand.
An uptick in February housing starts might provide eventual relief for home buyers. But let’s remember that it takes time — often a lot of it — for a home to get completed once construction begins.
There are permits to obtain, inspections to schedule, and materials (some of which might still be in short supply) to order. So even though there may have been an uptick in new construction in February, that doesn’t mean there was an increase in finished construction. And until we get to the point where there are more move-in ready homes on the market, buyers might continue to have a difficult time.
Should you delay your home purchase?
Between low supply, higher home prices, and stubbornly elevated mortgage rates, you may decide that 2023 just isn’t an optimal time to navigate the housing market. The good news is that home price gains have been dropping steadily and the market has been cooling. But buying a home today is still an expensive prospect. Between that and the fact that you might really struggle to find a home that checks off all the right boxes, waiting to buy isn’t necessarily a poor choice.
Of course, there’s a good chance that mortgage rates will remain at or around their current level in 2024. But if housing inventory increases by then, it could lead to a drop in home prices. And that way, buyers should get at least some relief.