US single-family housing starts, permits hit 10-month high in December
A row of residential houses stands in New York ·Reuters
Lucia Mutikani
Updated 5 min read
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. single-family homebuilding increased to a 10-month high in December, indicating some improvement in housing activity at the end of the year, though rising mortgage rates and an oversupply of new properties on the market could constrain recovery.
The report from the Commerce Department on Friday also showed permits for future construction of single-family homes rising last month to the highest level since last February. Economists said the data was likely flattered by a generous seasonal adjustment factor, the model used by the government to strip out seasonal fluctuations from the numbers.
Still, the report together with other news on Friday of a surge in manufacturing output last month amid a recovery in production at Boeing following a crippling strike, added to solid retail sales in December in suggesting the economy retained most of its strength in the fourth quarter.
With President-elect Donald Trump pledging broad tariffs and mass deportations of undocumented immigrants, policies that economists have warned would boost prices for raw materials and lead to worker shortages, the gains in homebuilding and factory output are likely unsustainable. Trump will be inaugurated on Monday.
"We expect a cocktail of building material tariffs and stricter immigration rules affecting construction labor under the new Trump administration, as well as the overhang of new homes for sale that has developed in some regions, to discourage builders from starting new projects in the second half of the year and into 2026, causing starts to tail off," said Thomas Ryan, North America economist at Capital Economics.
Single-family housing starts, which account for the bulk of homebuilding, rose 3.3% to a seasonally adjusted annual rate of 1.050 million units last month, the highest level since February 2024, the Commerce Department's Census Bureau said.
Single-family homebuilding shot up 14.3% in the Northeast and accelerated 8.3% in the Midwest. It increased 7.1% in the West, but was unchanged in the densely populated South. Single-family starts fell 2.6% on a year-on-year basis in December.
Starts for the volatile multi-family housing segment soared 58.9% to a pace of 418,000 units. Overall housing starts jumped 15.8% to a rate of 1.499 million units, the highest level since last February. Economists polled by Reuters had forecast housing starts would rise to a rate of 1.32 million units.
Starts dropped 4.4% from a year ago. An estimated 1.364 million housing units were started in 2024, down 3.9% from 2023.
HIGHER MORTGAGE RATES
Higher mortgage rates have weighed on homebuilding, which had been benefiting from a dearth of previously owned houses for sale. Mortgage rates have risen in tandem with U.S. Treasury yields, which have surged on economic resilience and investor worries that Trump's proposed policies, including tax cuts, could fan inflation.
The Federal Reserve has lowered the number of projected interest rate cuts for this year to only two from the four it estimated in September when it commenced its policy easing cycle. The U.S. central bank has reduced its benchmark overnight interest rate by 100 basis points to the 4.25%-4.50% range. The policy rate was hiked by 5.25 percentage points in 2022 and 2023.
The average rate on the 30-year fixed-rate mortgage rose above 7% this week for the first time since May, mortgage finance agency Freddie Mac said on Thursday.
Though homebuilders cheered Trump's victory in the Nov. 5 election amid hopes for a less stringent regulatory environment, sentiment was unchanged in January, with builders complaining about high borrowing and construction costs. Softening demand because of higher mortgage rates and house prices has pushed the supply of unsold new homes to levels last seen in late 2007.
Permits for future construction of single-family housing increased 1.6% to a rate of 992,000 units in December.
"The elevated level of inventory of unsold new homes on builders' books suggests that any eventual upturn in demand, as and when mortgage rates eventually fall, will feed through only weakly to building activity," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Multi-family building permits dropped 5.8% to a rate of 437,000 units. Building permits as a whole slipped 0.7% to a rate of 1.483 million units. They decreased 3.1% from a year ago. An estimated 1.471 million building permits were issued last year, down 2.6% from 2023.
The number of single-family houses approved for construction that were yet to be started dropped 2.1% to 141,000 units. The completions rate for that housing segment decreased 7.4% to 948,000 units, the lowest level since March.
The inventory of single-family housing under construction increased 0.8% to a rate of 641,000 units.
Residential investment has been a drag on GDP for two straight quarters. The Atlanta Fed is forecasting GDP to have risen at a 3.0% annualized rate in the fourth quarter. The economy grew at a 3.1% pace in the third quarter.
The economy's fortunes last quarter were also brightened by a separate report from the Fed showing manufacturing output increased 0.6% in December as production of aerospace and miscellaneous transportation equipment vaulted 6.3%.
Factory production rebounded 0.4% in November. Manufacturing, which accounts for 10.3% of the economy, has largely stabilized in recent months after the central bank started reducing rates. Trump's proposed trade and immigration policies, however, pose a downside risk.
"Lower interest rates will support purchases of goods like autos and heavy machinery," said Gus Faucher, chief economist at PNC Financial. "But higher prices from tariffs could weigh on demand. Many U.S. producers use foreign inputs in their manufacturing processes."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao)
