February 2025 New Residential Construction
What happened
New residential construction activity slowed in February, with permits, starts, and completions all below their level from one year ago. Permits fell by 6.8% year over year, starts fell by 2.9%, and completions fell by 6.2%. Builders are exercising caution due to the economic uncertainty stemming from the Trump administration’s advancement of a trade war and mass deportations. With tariffs being levied against construction imports like Canadian lumber and the construction labor force being reduced by immigration policy, builders are pulling back on delivering new homes to the market. In a country where the housing supply gap has reached nearly 4 million homes, a construction contraction is an unwelcome development.
Where it happened
Permitting for new units was hardest hit in the multifamily space, where a pullback was already pronounced through 2024. Permitted construction of units in buildings with five units or more fell 4.3% from January and remains 15.7% below last February. Single-family home permitting had a much more modest decline, down 0.2% month over month and 3.4% year over year. Given that national rents have been falling year over year for 18 consecutive months, it is not surprising that builders are pulling focus away from large apartment complexes, but this deprioritization of multifamily construction may lead to a supply pinch and higher rents in the future. Though 1-unit and 5 or more-unit permits both dropped in February, the 2-to-4-unit space was a bright spot, with the number of permits issued for this duplex or townhome segment rising by 5.3% both year over year and month over month. Regionally, the Northeast took the largest blow to permits, falling 15.3% month over month and 45.8% year over year. The West similarly dropped by 7.6% month over month and 8.8% year over year, while the Midwest and South actually saw modest permitting gains.
Housing starts rebounded from a weaker January, but remain below last year’s level. Once again, on a year-over-year basis, multifamily starts bore the brunt of the slowdown, falling 6.6% compared with 2.3% for single-family homes. Similarly, completions are down 15.8% from last February for multifamily projects and down 6.2% for single-family projects. There is a clear retreat happening in multifamily construction that will impact the rental market in the coming years, and this will be one of the main reasons that the streak of falling rents breaks.
What does this mean for homebuyers, sellers, homeowners, and the housing market
For prospective homebuyers, February’s completion numbers show newly built single-family homes hitting the market at the fastest seasonally adjusted pace since July 2024. With existing-home inventory also growing and nearly reaching pre-pandemic levels, buyers have many more options to choose from than they did a few years ago, and at better prices. We showed that it’s more affordable to rent a home than buying one in almost every major metropolitan area, but if prices start to soften and rents start to pick back up, this could change in a major way in the next few years.