October housing starts lagged amid mortgage market volatility, but recent signs indicate that new home construction will begin an upward trajectory as 2024 comes to a close.
The U.S. Census Bureau and Department of Housing and Urban Development (HUD) jointly announced the latest residential statistics for Oct. 2024 revealing housing starts underperformed consensus estimates of 1.335 million at a seasonally adjusted annual rate of 1.311 million — a 3.1% monthly decrease and 4% yearly decrease.
Single-family permits — a leading indicator of future housing starts — increased 0.5% to 968,000 in Oct. from September's revised total of 963,000. However, single-family permits were down 7.7% from Oct. 2023.
“Housing starts missed consensus estimates and single-family starts declined in October, despite rising builder sentiment,” First American Deputy Chief Economist Odeta Kushi commented on Tuesday's data. “Recent mortgage rate volatility serves as a reminder that elevated financing costs could temper a broader housing market recovery.”
This week also brought the latest reading of homebuilder sentiment, which climbed to its highest level in seven months in November, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
This reflects builders’ confidence in sales expectations for the next six months and beyond, following the Republican sweep of U.S. elections for the control of the White House and Congress.
“While builder sentiment remains in negative territory, builders are increasingly confident about selling newly constructed homes,” Kushi pointed out. “Of the index’s three components, builder sentiment on sales expectations for the next six months jumped seven points to 64 — the highest since April 2022.”
Builders’ ability to offer sales incentives and the higher inventory of newly built homes compared to existing homes both point to a growing demand for new construction.
“Looking ahead to 2025, my baseline expectation is that single-family home construction is poised to steadily increase, bolstered by modest declines in financing costs for builders and buyers and by the scarcity of existing homes due to the ongoing mortgage rate lock-in effect,” Kushi said. Builders continue to face headwinds, she added, including high construction costs and skilled labor shortages.
Single-family housing completions in October were at a rate of 986,000 – 1.4% below the revised September rate of 1,000,000.
