November 2023 New Residential Construction
What Happened:
New residential construction activity surged in November, rising 14.8% from October鈥檚 level to an annual rate of 1,560,000 housing starts, 9.3% higher year-over-year. This surge was due to both an 18.0% increase in single-family housing starts month-over-month and an 8.9% increase in multi-family starts. Single-family housing starts rose to 1,143,000, the highest level since April 2022 and 42.2% higher than the previous year鈥檚 level. Multi-family starts clocked in at 404,000 units, which though higher than the last 3 months, remains 33.7% lower year-over-year. This uptick in housing activity aligns with the slight improvement in homebuilder outlook in December, likely due to easing mortgage rates.
Mortgage rates have eased over the last couple of months, and even dropped below the 7% mark last week. Homebuilder sentiment has remained weighed down by concerns over demand as mortgage rates climbed to 20-plus year highs. However, falling mortgage rates have buoyed builder optimism slightly and homebuilder sentiment picked up to an index level of 37 from November鈥檚 34. The share of homebuilders cutting prices to encourage sales remained at 36% in December, however, as the prevailing mortgage rate in November and early December remained above 7%.
What Do Housing Permit Trends Tell Us:
Despite the uptick in starts, permitting activity fell slightly in December, dropping 2.5% month-over-month to 1,460,000 total permits. However, overall permits remained 4.1% higher than the previous year, driven largely by single-family permits, which rose 0.7% month-over-month and 22.8% year-over-year to 976,000 permits. Permits for structures with 5 or more units fell sharply in November, dropping 9.6% month-over-month and 21.3% year-over-year to 435,000 units.听 Regionally, single-family permitting was up from a year ago in all four regions and gained monthly in the Midwest and West while slipping in the Northeast and South.听
What Do Completions Mean for Housing Supply:
Home completions picked up 5.0% month-over-month in November to 1,447,000 completions, but fell 6.2% lower than one year ago. Single family completions registered 3.2% lower than the previous month at 960,000 units, 12.9% lower than a year ago. The elevated level of construction coming to market is likely to mean that new homes continue to be a higher than usual share of homes on the market for sale.
聽Multi-family completions surged 26.5%聽 month-over-month to a pace of 472,000, and remain up 9.5% year-over-year as multi-family construction activity continues to flow through an elevated under-construction pipeline. While down from its July 2023 peak of more than 1 million units in high-density buildings under construction, November鈥檚 988,000 units in 5+ multi-family buildings comes close and remains impressively strong. This additional rental inventory is likely to mean elevated completions and rental supply through 2024, helping to relieve pressure on rent prices.
聽Multi-family completions slipped 12.6% month-over-month to a pace of 408,000, but remain up 14.3% year-over-year as multi-family construction activity continues to flow through an elevated under-construction pipeline. While down from its July 2023 peak of more than 1 million units in high-density buildings under construction, October鈥檚 987,000 units in 5+ multi-family buildings would still surpass any prior peaks. This additional rental inventory is likely to mean elevated completions and rental supply through 2024, helping to relieve pressure on rent prices.听
What Does this Mean for Homebuyers, Sellers, Homeowners, and the Housing Market:
In last week鈥檚 FOMC meeting, the Fed kept interest rates steady once again. In their released projections for the upcoming year, the committee signaled that multiple rate cuts may be聽 on the table in 2024, which led to renewed investor optimism and tumbling mortgage rates. Mortgage rates dipped below 7% last week, suggesting that some relief is on the way for prospective home buyers discouraged by the run up in prices and mortgage rates over the last few years. The Realtor.com 2024 Housing Forecast lays out expectations for the coming year, including softened mortgage rates and home prices. A key factor in lower home prices will be housing supply. While many homeowners will continue to opt to stay put, this month鈥檚 uptick in single-family construction emphasizes the ongoing importance and influence of new construction in today鈥檚 market.