High interest rates persisted in holding down residential construction activity in January, with U.S. housing starts falling 4.5% month over month to a seasonally adjusted annual pace of 1.309 million units.
The decrease marked the fifth straight monthly decrease in housing starts, the longest such streak since 2009. Homebuilding activity continues to come in below expectations as economists polled by Reuters predicted an annual rate of 1.36 million starts.
Both single-family and multifamily building suffered in January, with the former down 4.3% from December and the latter backtracking by 4.9%. Year over year, both single-family (down 27.3%) and multifamily (down 8.1%) have contracted substantially, with total housing starts falling 21.4% annually.
Single-family starts, which fell to a seasonally adjusted annual rate of 841,000 units last month, continue to be plagued by slowdowns related to the availability and prices of both inputs and labor. Similarly, single-family homes already under construction are still lagging, noted Odeta Kushi, deputy chief economist at First American Financial Corp.
“There remains a large backlog of single-family homes under construction, as builders have been hampered by supply-side headwinds from labor shortages and high construction material costs,” she said. “Those homes are not move-in ready and thus do not meaningfully contribute to the stock of livable homes.”
Alicia Huey, chair of the National Association of Home Builders, tolled the bell for legislative action that would favor the easing of supply chain bottlenecks. She sounded a call that her predecessors have pushed since the COVID-19 pandemic began to put additional strain on construction material availability.
“While a recent two-month upturn in builder sentiment indicates a turning point for single-family construction could take hold in the months ahead, policymakers need to fix the supply chain for building materials to ensure builders can add the additional inventory the housing market desperately needs,” she said.
“Single-family housing completions increased 4.4% this month and are up 12% year over year,” Kushi noted. “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.”
“Single-family housing completions increased 4.4% this month and are up 12% year over year,” she said. “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.”
With demand still hampered by high interest rates, Kushi said that it’s probable that builders will prioritize their backlogs over new starts.
“Builders will likely continue to focus on completing existing projects, rather than starting new ones,” she explained. “As new completed home inventory rises, it will provide some much-needed relief to a supply-starved market.”