Homebuilding has more room to fall, and odds for a recovery are 'next to nil' until demand improves, economist says

• Homebuilding has room to fall further even after the latest drop in housing starts, according to Pantheon Macroeconomics.
• Senior US economist Kieran Clancy wrote in a Tuesday note that demand needs to improve before a recovery can begin.

Homebuilding has more room to decline as the housing market showed continued weakness on Tuesday, according to Pantheon Macroeconomics.

Housing starts dipped 0.5% in November as single-family construction dropped 4.1% while the more volatile multifamily category rose 4.8%, according to the Commerce Department. Meanwhile, building permits plunged 11.2%, with single-family permits down 7.1% and multifamily down 17.9%.

"The number of authorized projects which have not been started remains extremely elevated, so permits likely will fall further still; in the face of falling demand, developers don't need to keep adding to their pipeline at the current pace," senior US economist Kieran Clancy wrote on a note.

A "meaningful rebound in construction activity [is] still a long way off," while a "the downturn in housing starts likely has further to run, based on the lead-lag relationship between permits and starts," he warned.

Clancy added that the likelihood of a homebuilding recovery remains "next to nil until housing demand improves in a sustained and meaningful way." While the spring of 2023 is a possibility, "we aren't holding our breath."