The U.S. residential market ended the year on a mixed note with housing starts falling 4.3% in December, erasing nearly half of the 10.8% increase in November. Still high (though declining) mortgage rates, challenging affordability and slowing job growth are constraining home demand. The decline was driven entirely by a sharp 8.6% drop in single family starts following a 15.4% surge in November. Multifamily starts rose 8.0% and have increased in three of the last four months. Despite the monthly dip, housing starts are 7.6% higher than a year ago, the second consecutive increase and the largest since April 2022. Single family starts are up 15.8% annually while multifamily starts are down 7.9%.

Meanwhile, building permits, an indicator of future home construction, rose 1.9%, almost offsetting a 2.1% drop in November. The pickup in permits implies new construction will remain on an upswing in the near term. Gains were broad-based with multifamily permits climbing 2.2% and single family permits advancing a more modest 1.7%. Building permits have increased year-on-year for the last two months after declining for 15 months in a row, and the 6.1% upturn in December is the largest since March 2022.

Bottom line: The mixed data on housing starts and building permits suggest the U.S. housing market is having difficulty gaining traction despite the recent declines in mortgage rates. It is likely to remain weak until the inventory shortage and challenging affordability improve.

Table 1 - United States — Housing Starts, Building Permits

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics

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