The pace of housing construction showed mixed signals in January, with building permits showing growth year-over-year, while housing starts experienced a significant decline from December, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
Building permits, a leading indicator of future construction activity, were issued at a seasonally adjusted annual rate of 1,470,000 units in January, marking a slight decrease of 1.5% from December's revised rate of 1,493,000. However, this figure represents an 8.6% increase compared to January 2023, signaling continued interest in new housing development. Specifically, single-family home authorizations rose by 1.6% to a rate of 1,015,000 from December's revised figure of 999,000, while permits for units in buildings with five or more units were at a rate of 405,000.
Conversely, housing starts, which measure the commencement of construction on new housing units, totaled a seasonally adjusted annual rate of 1,331,000 in January. This reflects a sharp 14.8% drop from the revised December estimate of 1,562,000 and a slight 0.7% decrease from the January 2023 rate. The decline was more pronounced in the single-family sector, which saw starts fall by 4.7% to a rate of 1,004,000 compared to December. The rate for units in buildings with five or more units came in at 314,000.
Housing completions in January also saw a downturn, with a seasonally adjusted annual rate of 1,416,000 units, 8.1% below December's revised figure. Despite this month-to-month decrease, completions were up 2.8% from January 2023, indicating that builders are working through backlogs. Single-family home completions plummeted by 16.3% to 857,000 from December, while completions for units in buildings with five or more units were reported at 538,000.
“There is a risk in the short-term that housing market progress stalls as long-term interest rates have risen again in recent weeks, but this should be short-lived, as the expectation for Fed rate cuts remains, which should bring long-term rates down again," First American Deputy Chief Economist Odeta Kushi said. “The outlook for the single-family, new-home market is positive, but challenges remain. Potential home buyers are sensitive to mortgage rate fluctuations, while builders continue to face headwinds, such as higher construction costs and shortages of buildable lots and skilled labor.”
These figures highlight the ongoing challenges and volatility in the housing construction market, influenced by factors such as material and labor shortages, as well as fluctuating demand. While the year-over-year increase in building permits suggests optimism among developers, the drop in housing starts and completions underscores the complexities of translating permits into actual construction and ultimately, into new homes ready for occupancy.
