Plotify's Takeaway:
+ Housing starts decreased by 14.8% from the month prior but single-family starts remained up 21.9% from the year prior.
+ Future housing starts could increase as mortgage rates stabilize.
+ If mortgage rates decline, the demand for new single-family homes could intensify.
Newly published data from the US Census indicates that Housing Starts, a key metric gauging multi- and single-family construction, declined overall in January by 14.8% from December’s revised figures. Single-family starts, while declining 4.7% over the month, are still significantly higher from the year before. Housing Starts offer preliminary insight into future housing supply and confidence among builders for the year.
Despite overall housing starts slightly declining over the month, single-family starts are still in a strong position as they are up 21.9% from last year. There may still be upward momentum within housing starts as mortgage rates stabilize and are anticipated to drop further in 2024. A New York Fed study found that a one percentage point decline in mortgage rates can lead to more than a 10% increase in building permits. And while housing starts are lower than expected for January, builder confidence is bouncing back as builders ramp up efforts to meet buyer demand.
Looking ahead to this year, the National Association of Realtors forecasts a rate of 1.04 million single-family housing starts. However, this anticipated increase in residential construction remains short of meeting household growth and underlying demand for single-family homes. According to the National Association of Homebuilders, a sustained housing starts rate of above 1.1 million units is necessary to compensate for the housing supply deficit caused by a decade of underbuilding.
With mortgage rates anticipated to continue dropping this year in line with Fed rate cuts, we can expect future increases in housing construction for this year, as rates affect both the cost of building and homebuyer demand. However, bridging the long-term gap between supply and demand within the single-family market will require a large-scale increase in construction activity when builders remain more cautious than before the global financial crisis.
If an underlying housing imbalance between supply and demand continues, home prices could remain elevated as supply remains constrained and homebuyer demand persists within most metro markets. If interest rates ease as expected, we could see an uptick in homebuyer demand, further constraining existing inventory and placing additional pressure on home prices.
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