When the US housing market collapsed in the second half of last year, construction also stalled and has yet to recover. December home starts, a useful measure of new home construction, fell nearly 22% compared to December 2021, the Census Bureau announced Thursday, while 2022 overall saw 3% fewer homes than 2021.
New home starts and construction activity are key economic indicators, as they provide insight into the strength and confidence in the housing market. But while U.S. construction struggles amid high mortgage rates and a drying pool of home buyers, it’s far from the only global market taking a hit, as high interest rates and a slowing economy dampen construction around the world.
Construction in about 70% of countries around the world is experiencing a decline in activity and volume for next year, according to the latest industry forecast published Thursday by UK-based analytics firm Data Analytics.
Forecasters predict a decline in construction activity this year in 82 of the 112 countries where data was collected. The decline is mainly due to higher mortgage rates around the world, a weaker economy, and reduced buying activity, as well as tighter budgets for homebuilders.
While construction in most countries is expected to stall next year, some may recover faster and stronger than others. Between now and 2030, construction in developing economies will grow at a rapid rate of about 6.5% per year, more than the average 1.7% growth in all countries.
Despite slower growth, the US construction market will still be one of the largest in the world by 2030, second only to China. Even construction in India, which is expected to expand 9.7% annually over the next decade, will still only be about half the size of the US market in 2030.
However, the hardest-hit countries are in Western Europe, the report found. While construction in most markets is expected to recover next year, activity may remain slow in Western Europe, which is affected by the energy crisis and high inflation that could push the European Central Bank to keep raising interest rates longer than in other parts. from the world.
Overall, construction volumes in Western Europe will not return to the peak levels of early last year before 2028, the report found.
But while the outlook for construction and demand for new homes in Europe is slowing, the US market may be in better shape. US mortgage rates have fallen modestly over the past month, and that may have helped boost the housing market.
U.S. homebuilder confidence rose last month and exceeded expectations, according to a National Association of Home Builders/Wells Fargo report released Wednesday. The latest report found that current sales, buyer traffic, and construction sales over the next six months all rose in January, signaling the first increase in builder confidence since December 2021 and a potential rebound for the US housing market.
The US housing market crash may be near its nadir, according to some commentators.
While housing affordability and inventory remain close to historic lows, the market crash could ease as housing inches closer to the “trough” in the U.S., Sam Hall, property economist at Capital Economics, wrote last week. Higher numbers of home sales may be on the horizon, Hall wrote, citing falling mortgage rates and improving homebuyer sentiment.
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