Amidst a backdrop of declining mortgage rates and optimistic projections for further easing of borrowing costs, the construction of single-family homes in the United States is gaining momentum. Data from the Commerce Department reveals that builders initiated the construction of single-family homes in November at a seasonally adjusted annual rate of approximately 1.14 million units. This marks an 18% surge from October and an impressive 42.2% increase compared to November of the previous year, signifying the fastest pace since April 2022.
This upswing represents the third consecutive monthly increase in single-family housing starts, surpassing the rate of home completions for the first time since the spring of the previous year. Despite the November boost, the overall construction of single-family homes is on track for its second consecutive annual decline, with a 7.2% decrease for the first 11 months of the current year compared to the same period in 2022.
Driving this renewed activity are the falling mortgage rates, potentially attracting more homebuyers and encouraging builders to expedite construction in the coming year. The limited inventory of previously occupied homes for sale, due to homeowners securing lower mortgage rates, is also contributing to this trend.
Approximately 67% of U.S. homeowners with mortgages have a 30-year fixed-rate home loan at 5% or less, even with the recent decline in mortgage rates. The average rate on a 30-year mortgage, according to mortgage buyer Freddie Mac, remains just under 7%. This suggests that a substantial number of homeowners may be disinclined to sell in the upcoming year, providing builders with added motivation to expand construction in 2024.
Projections for the future of single-family home construction vary. The National Association of Home Builders forecasts a roughly 4% increase next year, attributing it to lower mortgage rates, slowing economic growth, and decreasing inflation. Conversely, Realtor.com predicts a more modest 0.4% increase. Chief economist Lawrence Yun from the National Association of Realtors forecasts a 13% rise, expecting builders to break ground on 1.04 million single-family homes in 2023, a significant increase from the projected 920,000 starts in the current year.
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