Housing Market Faces Growing Risk Of Multi-Year Collapse As New Home Construction Craters

New housing starts unexpectedly plunged more than economists projected in July—and to the lowest level in more than a year—as home builders grappled with dwindling demand for new homes, and though some experts remain optimistic that the market could be due for a quick recovery, others are only increasingly bearish.... [+]The number of housing starts, or ​​new houses on which construction has started, plunged 9.6% to about 1.

“Builders are responding to a pullback in demand,” Odeta Kushi, an economist at First American, said in emailed comments, explaining that rising mortgage rates have dampened affordability and “caused would-be buyers to sit on the sidelines.” In one bright spot, permits for multi-family units rose 2.8% last month, helping to offset the steep 4.3% drop in the single-family sector, and Kushi believes lower lumber prices and still-high rents may incentivize builders to construct more multi-family units, which are often rented out.

However, others are more cautious: Fitch Ratings released a note Tuesday morning warning that the likelihood of a severe downturn in U.S. housing has climbed as homes have become increasinglyThe firm predicts only a “moderate pullback” in the housing market, marked by a mid-single-digit decline in activity next year, but it also acknowledged housing activity could fall roughly 30% or more over a multi-year period in a worst-case scenario, pushing home prices down between 10% to 15%.

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