Deeper Thoughts
Building on Momentum: Construction Loans and New Housing Starts

Ok. Admittedly, this slump is getting old. 

Make no mistake, I remain optimistic that there are better times just around the corner. We have yet to experience a market downturn that wasn’t followed at some point by a rebound. But after a couple of quarters of depressed volume, widespread layoffs, and an overall conversation centered on doom and gloom, it is a little exhausting. 

Thankfully, good news is on the way. And I think it’s coming, in part, from the home builders.

Have we bottomed out?

The Census Bureau recently reported that privately‐owned housing starts in March were at a seasonally adjusted annual rate of 1,420,000. That’s 8.8 percent below the revised February rate and almost 25 percent below the March 2022 rate. 

And that’s the good news?

No. It’s actually bad news. But I believe (and so do a few others) that we are pretty much at or just were at rock bottom. And I believe construction loans will become a staple of the successful lender’s product mix sooner than later.

Some positive indicators

Now, how about a positive indicator? As reported recently by Reuters:

“The housing market has been choked by the Federal Reserve’s most aggressive interest rate hiking cycle since the 1980s to tame inflation. But the worst of the housing market downturn could be over. A survey on Wednesday showed the National Association of Home Builders/Wells Fargo Housing Market Index increased for a third straight month in March, though homebuilder sentiment remains depressed.”

Additionally, at the recent National Association of Home Builders (NAHB) 2023 International Builders’ Show, Robert Dietz, chief economist of the National Association of Home Builders (NAHB) expressed some optimism that the light at the end of the tunnel might not be an oncoming train after all: “With interest rates projected to normalize in the second half of 2023 as the Federal Reserve taps the brakes in its fight against inflation, the pace of single-family construction will bottom out in the first half of 2023 and begin to improve in the latter part of the year,” said), during a housing and economic outlook press briefing at the 2023 International Builders’ Show. “This forward momentum will lead to a calendar year gain for single-family starts in 2024.”

Erstwhile friend to the mortgage industry, Fed Chief Jerome Powell, finally hinted that we may have seen our last rate hike, for a bit, anyway. Wherever that number lands, if it remains stable for a while, we’ll start to see a turn in the real estate industry. Volatility is much more disastrous for lending than uncertainty in the marketplace. But when it comes to new housing starts, the rate has less impact. Instead, it will take increased starts from the housing segment to get moving. As the NAHB told us, “The only way to bring down housing inflation is to build more affordable housing.” But a stabilizing rate plus a demand likely to increase a bit as economic conditions improve would suggest that the Invisible Hand could soon do its thing.

On the edge of better days

Granted, it’s difficult to predict any market–especially this one. I’m not a macroeconomist. And yes, there are a thousand other variables (financial institution instability, for example) that could change things again. But, call me an optimist. I think good things are around the corner.

And, by the way, just know that LodeStar is the closing fee expert for any kind of home financing product. Our data and technology aren’t just for traditional, 30 year-fixed products. If it’s governed by TRID, LodeStar can handle it.  Even construction loans (at least, when they transition to mortgages)!


We at LodeStar are grateful to all of our clients, friends and colleagues who take the time to view Deeper Thoughts. Please consider having a look as well at some of our other great content, including our podcast, “LodeStar’s Lending Leaders,” and A Tale of Two Mortgages: an original webcomic for the mortgage industry, presented by LodeStar.”  As always, your feedback is welcomed and appreciated!