Builder Confidence on the Rise
The National Association of Homebuilders (NAHB) produces the Housing Market Index (HMI) monthly, which is a measure of home builder sentiment. The HMI, in January, moved slightly higher from the prior month. Analysts think this upward move reflects an improved belief among builders in future economic growth and an easing of the regulatory environment under the new administration.
“The NAHB is forecasting a slight gain for single-family housing starts in 2025, as the market faces offsetting upside and downside risks from an improving regulatory outlook and ongoing elevated interest rates,” said NAHB Chief Economist Robert Dietz.
Forces which may slow a surge in homebuilding include mortgage rates which climbed above 7% this week for the 30-year fixed mortgage. Additionally, home insurance and construction costs are rising.
In December 2024, housing starts surged 15.8% compared to November according to the U.S Census Bureau, with most of the construction in multifamily housing. But, paradoxically, permits for multifamily units were slightly down.
But for the entire year, “Single-family home building increased 6.5 percent for 2024, as builders added more supply in a market continuing to face a housing affordability crisis due to elevated mortgage interest rates and higher construction costs,” said Carl Harris, chairman of the (NAHB). “Nonetheless, the industry expects to see a slight gain for single-family home building in 2025 because of a persistent housing shortage and ongoing solid economic conditions.”
Not surprisingly, permits for single-family homes were at a rate of 992,000, an increase of 1.6% compared with November.On average in 2024, single-family home starts were at their second highest level since 2007, with the one exception being 2021, according to Odeshi Kushi, Deputy Chief Economist of First American. This means more homes on the market and more options for home buyers, which is good news for a housing market that has been underbuilt for over a decade.
While, overall, building permits declined in 2024 (2.6%), an estimated 1,627,900 housing units were completed in 2024, an increase of 12.4% compared with 2023.
According to Dietz (quoted earlier): “Multifamily construction will stabilize later in 2025 as more deals pencil out, with the industry supported by a low national unemployment rate.”
Kushi concurs, saying the recent increase in home starts and permits aligns with the increase in builder confidence.
“Builders are feeling cautiously optimistic as they start 2025, buoyed by an ongoing shortage of inventory of existing homes—many of which are locked up by homeowners reluctant to sell due to elevated mortgage rates,” added Kushi.
Additionally, the Federal Reserve is projected to ease rates this year. Although rates are high now, experts think there is reason to believe they will decline in the near term. And lower rates should propel builders to begin new home starts, offering buyers a wider variety of homes.