To My Esteemed Clients,
Despite the housing shortage, which some experts estimate to be between 2 million and nearly 6 million newly built homes, fewer individuals can now afford to buy a home. Although, the supply is likely to continue to increase in Florida, strong demand is likely to absorb the additional supply. The end result could be minimal appreciation in 2023 as the real estate market in the state, absorbs any overvaluation of real estate prices that presently exist. In other words, no drop in Florida real estate prices, but limited appreciation likely in 2023.
Warren Buffett's Favorite Housing Metric Just Flashed A Major Signal: What To Watch In The Housing Market
AJ Fabino
Berkshire Hathaway Inc CEO Warren Buffett once explained one of the metrics he watches for a reversal in the housing market is a reduction of housing starts.
The Oracle of Omaha said in 2010 that sometimes a “bad number” for housing starts is a good thing for the market — in this case, he was referencing a cool housing market in which supply outstripped demand. The only way to solve that was to create more demand than supply by reducing the number of newly built homes.
While the macro situation affecting the housing market today is almost the opposite, the main idea from the Oracle of Omaha still stands, and that key metric ticked down on Thursday.
What Happened: As a result of consumers being turned off by high mortgage rates and builders being compelled to cut back, construction on new homes decreased 4.2% in October, and this trend is expected to continue through 2023.
U.S. housing starts slowed to an annual pace of 1.43 million last month from 1.49 million in September. Single-family housing starts dropped 6.1% to a rate of 855,000, while the rate for units in buildings with five units or more decreased 0.5% to 556,000.
Compared to October 2021, housing starts fell 8.8%.
Additionally, the number of permits, which indicates how many homes will likely be built in the coming months, decreased drastically from a record 1.9 million last December by 2.4% to a rate of 1.53 million.
Why It Matters: Despite the housing shortage, which some experts estimate to be between 2 million and nearly 6 million newly built homes, fewer individuals can now afford to buy a home.
Home prices are just starting to come down from record highs, and 6.61% average 30-year fixed mortgage rates inflict a burden on buyers that directly affects new construction.
What’s Next? According to Moody's Analytics Chief Economist Mark Zandi, prices will decline nationwide by around 10% from peak to trough, bottoming out in the summer of 2023.
