Housing MarketMortgage RatesReal Estate

Homebuilders pulled back at the start of 2023

Home starts were down 4.5% month over month in January due to ongoing affordability issues

With economic uncertainty and supply chain issues plaguing the industry, homebuilders pulled back last month. Homes were started at an estimated annual pace of 1.309 million in January, down 4.5% month over month, according to a report released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Housing starts were down 21.4% at the start of the year compared to a year prior, thanks to the annual pace of single-family housing starts dropping to 841,000, a decline of 27.3% year over year.

“Housing construction weakened in January as ongoing affordability conditions fueled by high mortgage rates and building material costs challenged the market,” Alicia Huey, the chairman of the National Association of Home Builders (NAHB), said in a statement.

Bucking recent trends, multi-family housing starts were also down both year over year and month over month in January, dropping 8.4% and 5.4% respectively, to a pace of 457,000.

Although the pace of housing starts slowed, the pace of housing completions sped up in January to an estimated annual pace of 1.406 million units, up 1.0% from December and 12.8% from a year prior. The pace of both multifamily and single-family completions was also up year over year, rising 14.4% and 11.9%, respectively.

“Single-family completions have outpaced housing starts since July 2022, and that will likely put some downward pressure on the numbers of single-family homes under construction in the months ahead,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “Builders will likely continue to focus on completing existing projects, rather than starting new ones. As new completed home inventory rises, it will provide some much-needed relief to a supply-starved market.”

Despite Kushi’s predictions, the number of building permits issued increased slightly in January, as interest rates dipped during the month. Building permits were up 0.1% from December to an annual pace of 1.339 units, with 718,000 single-family permits issued, a jump of 1.8% compared to December.

Interest rates dipped in January, causing purchase applications to surge as buyers who were unlocked by the change in affordability jumped at the opportunity to get back in the market,” Nichole Bachaud, Zillow’s senior economist said in a statement. “Homebuilders responded to the slight rate drop as well, increasing not only builder confidence for the first time in over a year, but also slightly increasing housing permits in January from December. With mortgage rates back up in February, it’s likely that this momentum will be short lived.”

Regionally, housing starts were up month over month in the South (7.3%), and the West (5.5%) but were down 42.2% in the Northeast and 25.9% in the Midwest. On a yearly basis, homebuilders’ housing starts were down significantly in all regions except the Northeast, which posted an annual gain of 13.3%.

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