High borrowing costs and a tepid housing market are weighing against homebuilder confidence, with January starts sliding
The pace of home construction slowed across the US in January as stubbornly high mortgage rates and a sluggish housing market injected fresh caution into homebuilders’ outlook.
Government data released Wednesday showed new residential construction was down by 9.8% last month, dipping to a lower-than-expected annualized pace after surging by almost 16% in December.
Multifamily starts slid 13.5% in January, hitting an annualized pace of 373,000, while single-family starts declined to an annualized rate of 993,000 – a fall of 8.4%.
The overall annualized rate of 1.37 million in January was slightly below the 1.39 million expected by economists surveyed by Bloomberg.
The new Trump administration, meanwhile, has slapped a 10% tariff on goods arriving from China and threatened to impose blanket 25% charges on Mexican and Canadian imports (excluding Canadian energy, which would be subject to a 10% tariff), sparking fears of a surge in construction costs.
First American deputy chief economist Odeta Kushi said still-high rates, builder pessimism and a colder than usual January had all contributed to the weak figures for the month.
She noted that builder sentiment in February had reached its lowest level since September, spurred by plummeting single-family sales expectations for the coming six months.
That gloomy outlook among homebuilders is countering positive trends in single-family starts, Kushi added, including the fact that single-family construction is currently about 20% above the five-year pandemic average and single-family permits have also jumped.
“While builders are benefiting from a chronic housing shortage made worse by the ‘seller’s strike’ driven by higher mortgage rates, they still must confront lingering supply-side and affordability headwinds,” Kushi wrote.
“Among the supply-side concerns are higher material costs. Residential building material costs remain approximately 40% higher than pre-pandemic, making it more expensive to build.”
But a lack of new-home supply is keeping the new-home market steady, Kushi said, particularly with many current homeowners reluctant to list their property and lose the ultra-low mortgage secured during the pandemic.
“Additionally, market expectations are that the Federal Reserve will ease rates this year, though less aggressively than previously anticipated,” she said. “Lower borrowing costs could provide some relief, but builders know that higher-for-longer mortgage rates will keep buyers cautious.”
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