Single-family home construction starts fell -13% from November 2017 to November 2018, according to data provided by the US Census Bureau.

New construction sales of single-family homes in November 2018 were even worse. According to John Burns, CEO of John Burns Real Estate Consulting, “Sales, according to our survey last month, were down -19% y/y…I would call that a correction.”

Burns points to rising interest rates and ever-surging home prices. Despite half of the public being able to afford a $230,000 mortgage, 11 of the top 19 single-family homebuilders in the country have average sales prices of $400,000 and up. Burns said, “The rise in mortgage rates has really been a double whammy for (consumers.) A lot of focus has been on first-time buyers who now can afford 7% less than they could afford at the beginning of this year due to mortgage rates and home prices being even worse.”

Danielle Hale, chief economist with Realtor.com, said, “…cost increases have made it difficult for builders to deliver homes at the most in-demand price points.” Hale considers even new construction outside of major metros to be risky because of weakened demand caused by increasing interest rates.

Builders are not ramping up their move-up supplies but they are starting to cut their sales prices. Just compare the data. From July 2017 to October 2017, builders cut prices on 26% of their newly constructed homes. From July 2018 to October 2018, builders cut prices on 41% of their newly constructed homes.

The good news for homebuilders is in multi-family construction. Instead of starts falling -13% in single-family construction, starts in multi-family construction surged +20% in November 2018 compared with November 2017.