New Home Builders Optimistic Despite Housing Start Decline

New home construction accounts for 10-12% of single-family home sales in typical years. With the recent inventory shortages, some regional markets have seen that figure as high at 30%. The current market conditions of sustained low inventory and frustrated buyers led experts to anticipate strong new home sales for 2024.

That demand for sales is leading the National Association of Home Builders (NAHB) to forecast that single-family housing starts will increase 4.7% in 2024. They also noted around 80% of builders believe they will start on more homes this year, with about half expecting a 10% increase.

How is their prediction panning out early this year? The first quarter shows some pullback, which counters the anticipated growth.

Building Permit Activity

The new year kicked off relatively strong based on the figures from the joint US Census Bureau and Housing and Urban Development (HUD) tracking. They reported an 8.6% year-over-year (YOY) increase in building permit filings for January 2024. The figure was also slightly above the figures for December 2023. 

In February, permit activity exceeded estimates and year-over-year numbers, but activity slowed down slightly. Builders filed 2.4% more permits than in February 2023. 

According to the US Census Bureau, new home construction sales fell below projections in March 2024. The numbers were 4.3% less than last month, showing a builder pullback. However, they still were 1.5% more than March 2023. 

Housing Starts

Permits for privately owned residential construction are a sign of future activity, but the actual build time could be months or years out. Housing starts when construction breaks ground, making it a better indicator if new home inventory could increase about 9-12 months down the road. 

For January, housing starts actually slowed down. Builders broke ground on fewer projects, both month-to-month and year-to-year. Single-family homes had 4.7% fewer starts than in December 2023.

The market rebounded slightly in February 2024. Builders launched 5.9% more housing projects than in February 2023. In particular, single-family home starts were up 11.6%. 

Starts turned a different direction in March. Construction starts were down 14.7% from last month and 4.3% less than last year. Single-family homes declined 12.4% month-to-month.

Housing Completions

This statistic measures when the Certificate of Occupancy is filed, not necessarily when a new home is sold or the new owners assume title. Still, it’s an idea of how many new homes are ready to sell. 

Year-to-year, the completions increased 2.8% in January 2024, but overall, it was down from December. About 16% fewer single-family homes reached the completion stage.

February 2024 reported 9.6% more completions than the prior year. Single-family completions were up 20.2%  from January 2024. This is a sign that more new home construction could be coming to the market.

Delivery of new construction also slowed down. Completions were 13.5% under the prior month and 3.9% fewer than in March 2023. About 10.5% fewer single-family homes were delivered month-to-month. 

New Home Sales

While construction permitting and starts fell below last year’s numbers and market estimates, new home sales are on the positive. March 2024 has 9% more new home sales than anticipated. Year-over-year, new home sales were up 8.3%, with a median sales price of $430,700.

For the first quarter, 181,000 new homes sold, the majority in the $300,000-$399,000 price range.

The current supply of new homes for sale is estimated at 8.3 months nationwide or 477,000 homes. That means it would take that long to sell all the available new homes on the market at the end of the first quarter. 

First Quarter New Construction

Why the pullback in permits and starts? The real estate market had hoped interest rates would begin a slow but steady taper downward. Unfortunately, the opposite occurred, with interest rates heading back towards 8%. That stressed affordability for buyers and trickled over into demand for new homes.

Nonetheless, builders felt slightly more confident about new home sales over the next few months. The NAHB housing market index (HMI) increased month-to-month, ending at 62 out of 100 in March for activity over the next six months. An increase in potential buyer traffic was also noted.