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  • Writer's pictureRealFacts Editorial Team

High Mortgage Rates are Finally Hitting New Home Construction as Builders are Pulling Back on Projects

Home in construction

Record high mortgage rates have left both prospective homebuyers and sellers in a gridlock. Sellers want to keep their favorable rates and buyers simply can’t afford the new normal for mortgage payments. To add to the dilemma, the U.S. Census Bureau reported Tuesday that there has been a slowdown in both single-family and multi-family construction further adding to the 3-6 million housing unit shortage. Zillow believes that single-family construction slowed in March because “builders are beginning to anticipate that mortgage rates will likely remain elevated for much longer than previously thought.”

These high mortgage rates are affecting developer optimism which is translating into fewer homes being built. “While we are experiencing a housing supply shortage, the fact is that with high mortgage rates and an uncertain job market, many that want to purchase homes simply can’t do so,” Ryan Hoover, CEO of Ceed Civil Engineering, told Fortune. “So from a builder’s perspective, it makes little economic sense to ramp up construction on homes that won’t be sold in the near future.” Hoover also stated that increases in material costs along with an anticipated lumber tax increase are playing a role in the slowdown.

Although new single-family construction looks dismal, it’s still 21.2% higher than last year’s pace according to Zillow. Multifamily, on the other hand, is in a far worse spot. New construction on properties with 5 or more units is down 20.7% in March and a further 43.7% from the previous year, data from Zillow shows. This is a double-edged sword. Not only does it mean less inventory thus allowing the market to support higher housing costs, but it will also have an impact on the labor market as less construction translates to fewer construction jobs.

We will continue to see the effects of these issues for months to come. A decision to cut rates by the Federal Reserve could give developers the confidence they need to start building once again in anticipation of a more robust buyer’s market.

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