Builders continued to pump the brakes on building new homes amid a cooling housing market, with housing starts down further in December and permit activity following a somewhat similar path. An estimated 1.55 million housing units were started in 2022, down 3% from the 2021 figure.
Historically housing starts have been an early warning sign of an oncoming recession. And while recession risk has increased, the worst economic predictions for 2023 could still be avoided. This is partly because the labor market is still performing well and a slew of other incoming economic data points to falling inflation.
Loosening financial conditions and falling inflation have lowered building costs while falling mortgage rates have also curbed the decline in home buying activity. As a result, homebuilder sentiment increased in December after a 12 month losing streak.
Still, there is light at the end of the tunnel for potential homebuyers. Although housing starts fell compared to a year ago, more homes were started and were under construction in 2022 than anytime since 2006. The combination of newly built homes coming on the market and lower mortgage rates should improve housing affordability making it possible for many would-be homebuyers to re-enter the market.