Business

What to watch in the housing market


Berkshire Hathaway Corporation (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett once explained that one of the metrics he tracks for a housing market reversal is a drop 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, he was referring to a cool housing market in which supply far exceeds demand. The only way to solve that problem is to create more demand than supply by reducing the number of new homes built.

While the macro situation affecting the housing market today is almost the opposite, the main idea from the Oracle of Omaha still stands and that key metric dropped on Thursday.

What happened: As consumers were unhappy with high mortgage rates and builders were forced to make cuts, new home construction activity fell 4.2% in October and the trend is expected to continue. year 2023.

Read more: Is the housing market collapsing? What Home Depot says is happening across the US

U.S. housing began to slow to an annual rate of 1.43 million last month from 1.49 million in September. The number of single-family homes began to decline 6.1% to 855,000, while the rate for units in buildings with five or more units fell 0.5% to 556,000.

Compared to October 2021, the number of houses started has decreased by 8.8%.

Additionally, the number of permits, which indicates how many homes are likely to be built in the coming months, has plummeted from a record 1.9 million in December last year to 2.4% to 1. .53 million.

Why is it important: Despite the housing shortage, which some experts estimate is between 2 million and nearly 6 million new homes built, Few individuals can now afford to buy a home.

New home prices are starting to fall from record highs and the average 30-year fixed mortgage rate of 6.61% has burdened buyers, directly affecting new construction.

What’s next? According to Moody’s Analytics Chief Economist Mark Zandiprices will fall nationally by about 10% peak to trough, bottoming out in the summer of 2023.

Read more: Will There Be A Housing Market Crash In 2023?

Pandemic hotspots like Phoenix and Boise, where price spikes are the highest, will see further price drops.

According to Zandi, prices in those areas can drop by as much as 20%.

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Photo via Shutterstock.

Original story found here.

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