No one can afford to buy, and no one can afford to sell….

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The US housing market faced another blow in January, with housing starts plummeting by 14.8%, adding to the prolonged struggle caused by elevated mortgage rates. National Association of Home Builders (NAHB) CEO Jim Tobin discussed the concerning trends, emphasizing the challenges faced by first-time buyers amid soaring shelter inflation. Tobin acknowledged the 2024 housing outlook as “bumpy,” with over 900,000 homes currently under construction. He noted that the high cost of capital is disproportionately impacting the multi-family segment, while single-family homes display more resilience.

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Tobin highlighted a significant issue affecting the housing market – homeowners who purchased their homes at lower mortgage rates are now less likely to sell due to the substantial increase in rates, currently around 6-7% compared to the sub-3% rates seen in 2020 and 2021. A recent Zillow survey revealed that these homeowners face increased transaction costs if they decide to move, contributing to a ‘rate lock’ phenomenon where homeowners delay selling in anticipation of better rates. This situation further hampers housing supply.

Adding to the woes, US homebuilding experienced its most substantial drop since April 2020 in January. Winter storms and rising mortgage rates played a role in the 14.8% decline in housing starts compared to the previous month. The data, released by the Census Bureau, indicates the slowest pace since August, falling short of expectations at a seasonally adjusted annual rate of 1.331 million. The report underscores the challenging conditions in the US housing market, with sellers hesitant and buyers grappling with elevated mortgage rates.

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