Despite lower mortgage rates, housing starts ended the year on a downturn, after posting a large monthly gain in November.
New construction starts fell to a seasonally adjusted annual rate of 1.460 million units, down 4.3% month over month, according to a report released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
Despite the monthly drop, housing starts in December were up on an annual basis, jumping 7.6%.
The mixed results came in both the single family and multifamily sectors. While single family housing starts dropped 8.6% from November to a rate of 1.027 million units, this was up 15.8% compared to a year ago. However, multifamily starts were up 7.5% on a monthly basis to a rate of 417,000 units, but this figured was down 9.5% compared to a year prior.
Overall, an estimated 1.413 million units were started in 2023, a drop of 9.0% compared to 2022.
Looking ahead, homebuyers who may be looking to purchase a new construction home may continue to struggle with lack of inventory in 2024, as the overall estimated number of building permits issued in 2023 was down 11.7% annually to 1.469 million units.
“The market has tailwinds including the fact that mortgage rates dropped in December and the demand for housing remains high because overall new housing starts remain below household formation levels,” Kelly Mangold, the principal of RCLCO Real Estate Consulting, said in a statement. “Looking ahead, buyers who have been sidelined in 2023 may enter the market in 2024 if conditions improve, and lower rates will bring increased affordability to buyers.”
Despite the overall drop in 2023, the rate at which building permits were issued in December was up 1.9% monthly and 6.1% annually to a rate of 1.495 million. Notably, the number of single-family authorizations was up 32.9% year over year in December to a rate of 994,000 units, while multifamily authorizations were down 26.6% annually to 449,000 units.
“Single-family permits, a leading indicator of future starts, reached the highest level since May 2022. This is consistent with the latest builder survey, which showed an uptick in builder sentiment and future sales expectations,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “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. While headwinds remain, notably ongoing affordability constraints, the green shoots of a housing recovery have emerged alongside lower mortgage rates.”
The one statistic that did post a yearly increase for all of 2023, was housing completions, which was estimated to come in at 1.4525 million units, up 4.5% compared to 2022.
Housing completions were also up on a monthly basis, rising 8.7% to 1.574 million units.
Regionally, housing starts were down month over month in the Midwest (8.8%), the South (5.1%) and the Northeast (16.9%) but were up 4.7% in the West.
On a yearly basis, homebuilders’ housing starts were up in three out of the four regions, with the Midwest posting the largest annual gain at 46.1% to a seasonally adjusted annual rate of 187,000. Housing starts fell in the Northeast, dropping 46.8% to a rate of 108,000 units.
