Housing starts are expected to fall to about 744,000 single-family homes in 2023 as builders continue to scale back, which is down about 12 per cent from last year, according to projections from the National Association of Home Builders.

However, NAHB expects new construction to rebound in the second half of the year, giving a boost to the overall economy.

NAHB Chief Economist Robert Dietz said that typically, single-family construction tends to recover before the economy rebounds. As we move into the second half of the year, we should see brighter economic conditions.

Currently, the US has a housing deficit of about 1.5 million units, and that number is considered necessary. Builders need to build about 1.1 million homes this year to address the housing shortage, which is at least partly responsible for the spike in house prices.

But builders are facing challenges of their own. Demand for new homes has waned as buyers struggle to afford them with higher mortgage rates. New homes are usually more expensive than older homes. When mortgage rates and prices fall, many buyers are expected to jump back into the market.

"The fundamental challenge for housing remains the lack of homes for sale," Dietz said." So when affordability improves, that will create demand for new residential construction."

Multifamily construction is expected to fall about 28 per cent this year after a banner year in which more apartment buildings and condominiums went up. But the pullback may not be as severe as expected. Some 940,000 flats are still under construction, the most since 1973.

According to the NAHB, home prices could fall 15 per cent from peak to trough, a boon for pricey homebuyers.

Higher mortgage rates have hit the market hard, as homebuyers cannot afford the inflated monthly mortgage payments that come with interest rates. As a result, price growth has begun to slow and prices have even started to fall in some markets.

Economists say this will not be like the housing crash of the mid-2000s. Back then, there were more houses than buyers. This time the opposite has happened. During the COVID-19 pandemic, housing prices rose by roughly 40 per cent.

The increase over the past year means that the average American household can only afford about 42% of the homes on the market, the lowest percentage since the Great Depression.

However, if mortgage rates fall, this could give the housing market a much-needed boost, as homebuyers would have a smaller monthly payment. Dietz expects interest rates to fall this year and next.

"Affordability will gradually improve due to falling home prices and some declines in mortgage rates," Dietz said." Buyers should see a window of opportunity later in 2023, especially for inexpensive first-time buyers."

Even as buyers swoon for new homes they can afford again, builders may not be able to fill the housing gap.

Scarcity and high prices for land, materials and workers have driven up costs in recent years.

Dietz said material prices soared during the pandemic, the industry needs 740,000 new construction workers a year to meet demand and retirements, and many builders are having a harder time securing financing to build new projects.

This, he said, "limits the amount of construction that can be done".