Berkshire Hathaway Inc CEO Warren Buffett once stated that one of the metrics he’s watching for a reversal in the housing market is a slowdown in housing starts.
The Oracle of Omaha said in 2010 that sometimes a “bad number” for housing starts is a good thing for the market — in this case, referring to a chilly housing market where supply exceeded demand. The only way to solve this was to create more demand than supply by reducing the number of new homes being built.
While the macro situation affecting the housing market today is almost the opposite, the main idea of the Oracle of Omaha still stands and this key metric has fallen again this month.
What happened: As consumers were put off by high mortgage rates and homebuilders forced to make cuts, new home construction fell 0.5% from October and this trend is expected to continue into 2023.
Also read: Is the housing market crashing? What Home Depot says is happening in the US
US housing starts slowed to an annual pace of 1.427 million last month from 1.43 million in October and 1.49 million in September. Housing starts for single-family homes fell 4.1% to 828,000, while the rate for units in five-unit buildings rose 4.8% to 584,000.
Compared to November 2021, housing starts fell by 8.8%.
In addition, the number of permits, which indicates how many homes are expected to be built in the coming months, fell drastically by almost 29% to 1.35 million from a record 1.9 million in December last year.
Why it matters: Despite the housing shortage, which some experts estimate at 2 to almost 6 million newly built apartments, fewer and fewer people can afford to own a home today.
Home prices are just beginning to bounce off record highs and 6.51% average 30-year fixed-rate mortgage rates are weighing on buyers, directly impacting new construction.
What’s next? According to chief economist at Moody’s Analytics Mark Zandiprices will fall by around 10% from peak to trough across the country, bottoming out in the summer of 2023.
The story goes on
Also Read: Will There Be a Housing Market Crash in 2023?
Pandemic-era hotspots like Phoenix and Boise, which saw the highest price spikes, should see further price declines.
According to Zandi, prices in these areas could drop by up to 20%.
Rather than trying to time the market, many investors use this strategy to buy shares in individual rental properties for as little as $100 and earn passive income through all market cycles.
Visit Benzinga’s real estate homepage for the latest developments in the industry.
More on Benzinga real estate
Original story found here.
Don’t miss real-time alerts on your stocks – join Benzinga Pro for free! Try the tool that will help you invest smarter, faster and better.
© 2022 Benzinga.de. Benzinga does not provide investment advice. All rights reserved.