Truist Believes Single-Family Starts Near Bottom

Charlotte, NC, March 24, 2023-Truist Securities released the following housing market analysis.

Housing Finding Bottom; Will Recent Events Change That? As we discussed in our recent report on housing starts: Building Products-February Housing Starts, single family start activity is weak, but seems to be hitting a bottom at 25% to 30% year over year declines. Coupled with homebuilder commentary of better sales activity year to date, it appears that the industry is finding a bottom roughly at current interest rate levels. The recent news on banking turmoil has added a new wildcard to the industry. The question now shifts to whether this constricts the mortgage market (it has widened mortgage to ten-year treasuries somewhat) or lending to sector. This will take time to see impacts, if any, and more importantly see if these problems spread. 

What Will Housing Grow on Other Side of Cycle? Given that the U.S. will see structurally higher interest rates for the foreseeable future, the market has generally believed that home buying growth rates will be lower than in the last cycle. In conjunction, the market belief is that renovation will be better as homeowners hang on to low mortgage rates. We agree with this view but note this has also driven existing home inventory to dramatically below historic lows. A growing belief is the result will be that new homes have a higher percentage of home purchase share versus existing homes. Investors should note that the impact of this theory is several years away but could change the growth rate of new construction.”