What happened
New residential construction activity slowed again in October. The number of units permitted for construction fell to 1,416,000 on a seasonally adjusted annual basis, a decrease of 0.6% from the previous month and 7.7% from the previous year. Housing starts dropped as well, to an annual rate of 1,311,000 units, down 3.1% from September and 4% from last October. Completions fell month over month as well, but at a seasonally adjusted annual rate of 1,614,000. They remain well higher than permits and starts—as they have for much of the past year—and higher than they were in October 2023. The multifamily segment continued to see its outlook darken, with permits down 20.9% and starts down 12.6% year over year. Single-family construction held a bit more steady, with permits down 1.8% and starts down 0.5% year over year. Given the softness in the national median asking rent over the past year-plus, the fact that builders are focusing on new single-family housing is not a surprise.
Where it happened
The most notable regional activity in the last data release was the Northeast, where housing starts were up 57.9% month over month and 109.3% year over year in September. Northeastern completions similarly were up 55.6% month over month and 92.2% year over year on a seasonally adjusted annual basis. These September figures have been revised down, and the October data shows a further retreat from last month, but the level of construction activity in the Northeast remains elevated. Starts are up 39.2% and completions are up 68.0% year over year in the Northeast, though permits trail October 2023 by 5.9%. Interestingly, the Northeast is bucking the national trend by growing starts and completions primarily with multifamily projects. Single-family starts in the Northeast are up only 9.8% and single-family completions are up only 17.6% year over year.
Most of the new homes to be built continue to be located in the South, which is home to 53.1% of issued permits in October. This region’s recent dominance appears to be waning, as total permit issuance is down 12.8% year over year and single-family permits trail last October by 6.8%. The Midwest is gaining ground, with 10.9% year-over-year total permit growth and 8.5% growth in single-family permitting. The median listing price per square foot is growing the fastest in the Midwest, at 3.7% year over year, and slowest in the South, at 0.8% year over year, so builders are striking where the iron is hot in terms of focusing their new projects.
What does this mean for homebuyers, sellers, homeowners, and the housing market
October’s slowdown in new-construction activity can be attributed to mortgage rates, which increased in every week of the month after hitting a two-year low in September, and uncertainty leading up to the November election. Builders are swimming upstream in the current high-rate environment, as buyers are less willing to make a purchase and the costs of financing their new projects remain high. Builders were also anxious to see which direction the country would choose in terms of new housing policy, and the results of the election have offered more questions than answers. On one hand, the threat of mass deportations could lead to labor shortages and higher labor costs for builders, and tariffs on building materials will chip away at their profits. On the other hand, some campaign promises from the now-elected Trump administration to support building new homes (such as opening up federal lands for development and removing building regulations) might give builders a jolt of confidence.