Housing demand to lessen in U.S. due to higher rates despite January's uptick

Posted on February 27, 2023   |  

Higher rates and growing construction costs signify a weak market, which will likely remain so until later this year when a building rebound will start to have an effect. 

In January, single-family starts decreased by 4.3% to 841,000 seasonally adjusted annual rate, down 27% from a year ago. 

The multifamily sector fell by 4.9% to an annualized 468,000 pace for 2+ unit construction and annually, multifamily construction is down 8.1%, with additional declines forecasted. 

At the start of 2023, the 10-year Treasury rate was at 3.9% but then fell to 3.4%, as the bond market briefly adopted a dovish view of future monetary policy conditions. 

As a result, mortgage interest rates fell from 6.5% to 6.1% by the end of January; Mortgage demand grew by 3%, and refinance demand increased by 17% week over a month at the end of the month. 

However, the 10-year Treasury increased to 3.9%, and the average 30-year fixed rate mortgage will rise to 6.7% in the coming week due to ongoing elevated inflation, with the Consumer Price Index (CPI) up 6.4% year over year. 

In January, residential construction material growth grew by 5.1% from a year ago, with concrete prices up more than 13% since the start of 2022.