U.S. new home construction fell unexpectedly in November as a decline in multifamily projects softened the rebound in single-family starts only in the storm-ravaged South.
The number of new homes added fell 1.8% to 1.29 million year-on-year, the slowest since July, according to government data released Wednesday. The average forecast was a pace of 1.35 million.
The number of starters of single-family homes increased by 6.4% to 1.01 million on an annual basis, while new construction of multi-family projects fell by more than 23%.
The rebound in single-family home construction was driven by an 18.3% advance in the South – the nation’s largest homebuilding region – as parts of the area that includes Florida recovered from hurricane-related slowdowns in late September and October. All other regions declined.
The outlook for the sector has become bleaker in recent months. Builders have ramped up construction over the past year to take advantage of the shortage of existing homes on the market. However, the stock of new homes for sale is now at its highest level in almost 17 years.
Excluding the South, total new home construction fell 28.2% in the Midwest and nearly 12% in the West. In the Northeast, single-family home starts fell to their lowest level since July 2021.
Building applications
According to the government’s housing report, building permits, which indicate future construction, increased by 6.1% to a figure of 1.51 million on an annual basis. Permits for single-family homes had changed little, amounting to 972,000 on an annual basis.
The number of projects under construction fell by 1.8% to 1.43 million on an annual basis, the lowest in more than three years. The number of single-family projects under construction fell to the lowest level since March 2021.
Builders had been working on a plethora of projects, but since the peak in August, completions have declined for three months in a row – the longest stretch since 2021.
Meanwhile, demand for housing is limited by high financing costs. The average 30-year fixed mortgage rate has risen since a two-year low in September and is likely to remain above 6% for the next two years, according to a forecast from the Mortgage Bankers Association.
While Fed policymakers are expected to cut their policy rates for the fourth consecutive time this afternoon, they will also take a more deliberate approach in 2025.
To lure buyers, builders offer customers “mortgage buyouts,” or make prepayments on their behalf to lower their monthly payments, and occasionally lower prices as well. However, these temptations have eaten into builders’ profit margins, says Bloomberg Intelligence analyst Drew Reading.
The likelihood that they will have to continue to rely on stimulus partly explains why homebuilder shares have fallen sharply in recent weeks, Reading said.
New home construction data is volatile and the government report found that 90% believed the monthly change ranged from a decline of 12.4% to a gain of 8.8%. The National Association of Realtors will take a look at the resale market Thursday when it releases its report on November sales of previously repossessed homes.