The market for new homes saw a pullback in starts during December, ending 2023 with a 4.3% monthly slip to a pace of 1.46 million units, according to the U.S. Census Bureau and the Department of Housing and Urban Development.
Despite the month-over-month decline, December still saw a yearly uptick of 7.6%. The monthly decrease was, in large part, a correction from the enormous 15.4% surge in starts during November, which was likely brought about by unseasonably warm weather pulling construction forward.
Single-family construction accounted for most of the pullback, decreasing 8.6% from November’s revised figure to a rate of 1.03 million units. Single-family starts for full-year 2023 totaled roughly 945,000 units, a 6% annual drop.
Still, single-family building generally improved as the year went on, with builders deploying discounts and buydowns to counter the rising interest rate environment. And even with the monthly decline, single-family starts remain solid, said Alicia Huey, chairman of the National Association of Home Builders (NAHB).
“Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” Huey said. “And the fact that our latest surveys showed a big increase in builder confidence is an indicator that we can expect housing starts to improve in the coming months.”
Indeed, builders seem optimistic for the months ahead, with the NAHB/Wells Fargo Housing Market Index leaping by 7 points in January. It’s the second straight improvement in the index, which tracks builders’ confidence in the new single-family home market.
“The jump in single-family permits and the upward trend in single-family housing starts alongside improving builder sentiment is an encouraging sign for the housing market,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “While headwinds remain, notably ongoing affordability constraints, the green shoots of a housing recovery have emerged alongside lower mortgage rates.”
With rates trending downward, reignited demand for new homes already appears to be encouraging builders to ramp up some more. Single-family permits grew to an annualized rate of 994,000 in December, the fastest pace since May 2022.
“A rise in single-family permits is a sign that we will see the single-family market pick up steam in the near future,” said Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis at the NAHB. Her prediction came with a caveat, however; due to tighter financing, Danushka Nanayakkara-Skillington expects weakening in the multifamily market.
Multifamily starts, including apartment buildings and condos, grew 8% to a pace of 433,00 units in December. But higher capital costs and an active pipeline of under-construction projects have already taken a bite out of multifamily building, with full-year multifamily starts in 2023 down 14.4% year over year. And while multifamily construction is infamously volatile, the average rate of multifamily starts in the fourth quarter of 2023 was 412,000 — almost 26% lower than in the same period one year prior.
