US home construction slowed down at the end of 2023

Image: Loren Biser/Unsplash

The annual pace of new home construction in the US pulled back in December 2023 after soaring in November despite a historic shortage of housing inventory and falling mortgage rates.

Housing starts came down by 4.3% in December compared to the previous month, according to US Census Bureau data. Starts fell to a seasonally adjusted annual rate of 1.46 million units last month, dropping from November’s pace of 1.56 million.

Still, homebuilding has improved from a year ago, with housing starts up 7.6% from the rate of 1.357 million units in December 2022.

“Even though construction started slowing at the end of 2023 there are tailwinds with mortgage rates trending lower that will help construction this year,” said Kelly Mangold of RCLCO Real Estate Consulting.

While average mortgage rates have moved ticked higher in late December they have settled at around 6.6%, one full percentage point lower than last year’s peak of 7.79%, according to Freddie Mac. Rates are expected to continue to fall slowly in 2024.

Additionally, homebuilder sentiment in January 2024 is strong according to a separate survey which showed optimism about the new construction market is the highest it has been since September.

New construction has also benefited from the low inventory of homes on the resale market, where homeowners are reluctant to sell and give up their ultra-low mortgage rate for much higher prevailing rates.

Canadian housing starts rebounded in December after a surprise decline in the prior month but ended the year down from 2022 at a time when the deficit of housing units is at or near a record high. Housing starts across Canada came in at a seasonally adjusted annual rate of 249,255 units in December, an 18% increase from the month before.

For 2023, actual housing starts fell 7% to 223,513 units from the prior year, and the federal housing agency attributed the weakness to a sharp drop-off in construction of single-detached homes. The results emerge as Canada faces an acute housing shortage, in part due to some of the fastest population growth in the world.

Source: ITTO