Rounding out 2023’s data, Point2 most recent study revealed that 1.45 million newly built homes hit the market last year, a 4.2% increase over 2022. But, the number of new homes increased only due to the development of the multifamily sector, which jumped 22%.
Breaking this number down, one million new homes were single family homes, whereas 450,000 new units were developed as part of two-unit or multifamily buildings. This small year-over-year rise is in line with the more subdued increases over the last five years.
Coupled with the fact that new single-family home permits are dropping, this could point to a shift towards bolstering the rental sector rather than relieving the pressure on the homes for sale front.
Just how much building permits fell between 2022 and 2023 is more than a noticeable bump: homes under construction fell by 9%, while the total number of permits dropped by 11% year-over-year.
Other key data from the report includes:
- The total number of completed homes rose last year due to the 22% increase in multifamily units, which compensated for the 2% decrease in new single family homes.
- In 2023, permits fell for the second year in a row: Last year’s 11% drop followed the 5% drop from 2021.
- Like permits, total started units fell in 2023, by 9%. Similar to the negative trend in permitting activity, 2023 was the second year when builders broke ground on fewer homes compared to the previous year.
- Of the 384 total U.S. metros, permits fell in 266 and increased or stagnated in 118. This means that a distressing 70% of all U.S. metros saw a reduction in new permits in 2023.
According to Point2, new construction numbers should typically be stronger during times of low inventories; however, with supply chain issues piling up and loan rates for builders continuing to rise, developers’ confidence is going in the opposite direction.
As such, when builders and home sellers become more cautious, they retract from the market to protect their margins and profits from the negative effects of rising rates and greater financial uncertainty.
Point and case, Federal Reserve Chairman Jerome Powell’s recent comments to congress highlighted a case to hold interest rates steady at future Federal Open Market Committee meetings, instead of the anticipated cuts that have been expected.
That said, early 2024 numbers point towards a better future; despite the factors pushing back on housing construction and permitting activity, mortgage rates falling below 7% might signal a positive shift. According to the National Association of Home Builders’ January press release, builder confidence is on the mend:
“Mortgage rates well under 7% over the past month have led to a sharp increase in builder confidence to begin the new year. Builder confidence in the market for newly built single-family homes climbed seven points to 44 in January, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This second consecutive monthly increase in builder confidence closely tracks with a period of falling interest rates.”
Click here to see the report in its entirety.
