What happened
New residential construction activity showed mixed results in January with a strong housing completions figure, a neutral housing permits figure, and a negative housing starts figure month over month. Completions reached a seasonally adjusted annual rate of 1,651,000, up 7.6% from December and up 9.8% from last January. Builders are hustling to wrap up their projects and get new homes onto the market in advance of the start of the spring buying season. Permits were basically unchanged from December, at a pace of 1,483,000 annually, but trail January 2024 by 1.7%. This is the first place where we see some uncertainty about the future affecting builder decisions. Starts dropped 9.8% from December to 1,366,000 on a seasonally adjusted annual basis, undoing a stronger December and falling to basically flat with January of last year. There is a 285,000 home gap between starts and completions this month, a reversal of the trend from last month where those two numbers sharply converged, signaling that builders are in wait-and-see mode when it comes to kicking off new residential construction projects. Given the recent inflation numbers and the continued rhetoric from the Trump administration about tariffs, both of which drive up the cost of construction and keep mortgage rates stubbornly high, it’s not surprising to see this bit of reluctance when looking to the medium-term future.
Where it happened
The slowdown in housing starts is similarly distributed between single-family projects (down 8.4% month over month and 1.8% year over year) and multi-family ones (down 11% month over month but still up 2.3% year over year). Similarly, the housing completion speedup is split between single-family units (up 7.1% month over month and 8.9% year over year) and multi-family units (up 10.1% month over month and 11.8% year over year). Rents have been falling for 18 consecutive months on a year-over-year basis, but the pace of the decline slowed in January, so builders are accordingly paying nearly equal attention to projects of five or more units as they are to single-family home projects.
Looking forward, the region with the strongest permitting performance was the Midwest, where overall permits picked up 1.8% from December (+4.7% year over year) and single-family permits increased 5.5% (+8.9% year over year). We showed in the most recent New Construction Insights Report that the Midwest was home to a relatively higher premium on new construction homes compared to existing homes and a relatively lower share of new builds on the market, so builders are responding by filling that opportunity gap. The Northeast, which has a similar new construction market makeup to the Midwest in that new builds are few in number and high in price, saw a retreat from permitting in January instead, down 6.1% both month over month and year over year. Permitting in the South, the largest region for new construction, remained basically steady overall but fell by 3.9% from December and 5.9% from last January in terms of single-family home permits, suggesting that the focus there is on multi-family construction. The West region permitting picked up from a weak December but remains down 9.2% from last year at this time.
What does this mean for homebuyers, sellers, homeowners, and the housing market
Builders are exercising caution in January 2025, responding to the overall slow home sales market of 2024, in which fewer existing homes were sold than in any year since 1996. The growing gap between completions and starts suggests some pessimism about building and selling new homes in the near future, but also some optimism about the current state of the market despite high mortgage rates. This is supported by recent data on new home sales that show that the new construction segment is currently the strength of the housing market. The uptick in completions is good news for buyers, who continue to see more options available to them both overall and among newly-built homes. If builders continue to prioritize smaller, less expensive projects, we will see affordability in the housing market improve.