Low-interest rates during the COVID-19 pandemic drove housing demand higher, incentivizing builders to start new projects. But now, higher rates are killing demand and construction is slowing down dramatically.
The number of new building permits for multi-unit residential buildings dropped to a three-year low in September, after reaching 40-year highs during the pandemic.
“The pandemic boom in U.S. multi-family housing construction appears to have come to an end,” Bloomberg reporter Matthew Boesler said, citing recent Census Bureau data.
The pandemic boom in U.S. multi-family housing construction appears to have come to an end. Census Bureau data out this morning shows new building permits for the category fell in September to a three-year low pic.twitter.com/N1F9aSKq5G
— Matthew B (@boes_) October 18, 2023
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The lack of new permits shows that commercial real estate companies may be more hesitant to build new complexes amid higher interest rates and an uncertain economy. But, single-family home construction seemed more steady and actually increased in September.
High mortgage rates have slowed down the housing market, making it more expensive for new homebuyers. During the pandemic, houses were rarely on the market for more than a month, but now sellers are having trouble finding buyers that are willing to tolerate the mortgage rates in the last 20 years.
Real Estate Stocks: Real estate stocks have not participated in 2023’s otherwise broad-market rally. The Real Estate Select Sector SPDR Fund (NYSE:XLRE) is down 8% year-to-date against the S&P 500’s gain of more than 13%. Prologis Inc (NYSE:PLD), the largest publicly-traded REIT, is down about 6% YTD.
The real estate sector could see a rally if interest rates start to come down and mortgage rates come off of 20-year highs.
Image by Borko Manigoda from Pixabay
