US Single-Family Housing Starts Dip in January; Permits Increase

In January, U.S. single-family homebuilding saw a decline of 4.7%, likely due to severe weather conditions affecting construction activity across the country. Single-family housing starts fell to a seasonally adjusted annual rate of 1.004 million units, although data for December was revised upwards. Cold temperatures hindered ground-breaking efforts, impacting various sectors, including retail sales and manufacturing production. Despite this, the market’s acute shortage of previously owned houses continues to support ongoing homebuilding activity.

While single-family homebuilding decreased in the Midwest, South, and West, it saw a rise in the Northeast. However, a rebound is anticipated with improving weather conditions in February and the Federal Reserve’s expected interest rate cuts in the first half of the year. The National Association of Home Builders’ survey indicates growing confidence among single-family builders, accompanied by decreased price cuts and sales incentives. Permits for future construction of single-family homes also saw a modest increase of 1.6% to 1.015 million units last month.

Boomers Blamed for Housing Inventory Shortage

The housing market inventory shortage is attributed to older Americans, particularly Baby Boomers, who opt to stay in their homes longer. Approximately 40% of Baby Boomers have resided in their current homes for at least two decades, with another 16% having stayed for 10 to 19 years, according to a report by real estate brokerage Redfin. Traditionally, older generations downsized, creating more inventory for first-time buyers and young families. Still, the trend is shifting as more Baby Boomers choose to age in place until mortgage costs decrease, contributing to the scarcity of available properties.

The typical US homeowner has lived in their house for nearly 12 years, a significant increase from previous years. The reluctance of homeowners, particularly Baby Boomers, to sell their properties amid surging mortgage costs has intensified the inventory shortage, driving up home prices. This shortage disproportionately affects first-time buyers and growing families, exacerbating affordability challenges in the market.

MBA: January New Home Mortgage Applications Up 19.1% YoY

In January 2024, mortgage applications for new home purchases surged by 19.1% compared to the previous year, marking the twelfth consecutive annual increase. This robust growth was further accentuated by a significant 38% increase compared to December 2023, with no seasonal adjustments applied. Joel Kan, the Vice President and Deputy Chief Economist at the Mortgage Bankers Association (MBA), attributed this surge to the enduring appeal of newly built homes, especially as prospective buyers sought to capitalize on lower mortgage rates. The seasonally adjusted annualized sales pace of new home sales reached 700,000 units, the highest level since October 2023, indicating strong demand in the market.

MBA’s new single-family home sales estimate, a leading indicator of the U.S. Census Bureau’s New Residential Sales report, stood at a seasonally adjusted annual rate of 700,000 units in January 2024. This figure represented a notable 16.9% increase from December’s pace of 599,000 units. Unadjusted data from the MBA suggested a substantial rise in new home sales, with an estimated 63,000 units sold in January 2024, marking a 37% increase from the previous month. Additionally, the distribution of loan applications for new homes showed that conventional loans accounted for the majority at 64.5%, followed by FHA loans at 24.8%, V.A. loans at 10.3%, and RHS/USDA loans at 0.4%. Moreover, the average loan size for new homes slightly decreased from $405,368 in December to $401,282 in January.