After a minor bump in December, housing starts came crashing down in January, revealing the more cautious approach many within the industry have said they are taking in response to market stressors entering into 2025.
According the New Residential Construction report put out by the Census Bureau, total housing starts in January nosedived from December’s revised annual rate of 1.51 million down to a seasonally adjusted annual rate of 1.36 million. This represents a drop of 9.8% from the prior month’s numbers, while making a small deviation of 0.7% down from the year prior.
Single-family housing starts saw a similar battering, dropping 8.4% to a rate of 993,000 compared to December’s rate of 1.08 million, although it represented a greater drop year over year (YoY) compared to total housing starts, coming in 1.8% lower than January 2024’s rate.
Multifamily, too, was not exempt from this drop either, as the entire sector, which includes apartment buildings and condos, dropped 13.5% from last month, down to an annualized 373,000 rate.
Looking at regional data, the West was perhaps the only region that came out of everything unscathed with total housing starts finishing at a rate of 400,000, up 42.3% from December. The Northeast, Midwest and South, meanwhile, saw drops of 27.6%, 10.4%, and 23.3% respectively among total housing starts.
Lightapalooza took place in late February, and the growth of the event has mirrored the rapid ascension lighting fixtures and controls.
Mortgage rates peaked in January at 7.05% according to Freddie Mac, with current interest rates sitting at around 6.87% as of writing. This ongoing pressure, which analysts state is likely to persist in 2026 given recent upswings in inflation. Consensus estimates on mortgages expect rates to stay largely above 6% during that time.
While President Trump promised a multitude of different tariffs while on the campaign trail, a handful of these measures are either currently or expected to impact the homebuilding industry.
In a recent article published by the National Association of Homebuilders (NAHB), Trump’s order of a 25% tariff on all steel and aluminum entering the United States is expected to “raise the cost of imported steel and aluminum products by several billion dollars, adding layered costs that could substantially impact builders’ ability to deliver new single-family and multifamily projects.”
These tariffs will go into effect in March 2025.
Another set of tariffs likely to impact the homebuilding market are those to be imposed on imports from Canada and Mexico. In 2023, Canada imported 28.1 million cubic meters of softwood lumber, accounting for 30% of all softwood lumber consumed in America.
“As mirrored in our latest builder survey, high construction costs, elevated mortgage rates and challenging housing affordability conditions are causing builders to approach the market with caution,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan.
“The uncertain policy environment in terms of a better regulatory climate and impending tariffs offers both upside and downside risks in the near-term.”
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence dropped five points from January to 42, marking the lowest level in five months. Prior to the pause on the Canada and Mexico Tariffs, the HMI reading clocked in at 38.
In fact, all three of the major HMI indices posted losses moving into February. Current sales conditions fell four points to 46, sales expectations in the next six months plunged 13 points to 46 and the traffic of prospective buyers dropped three points to 29.
For reference, any number below 50 indicates that builders view conditions more poor than good.
Despite the dour sentiment, homebuilders are holding out that a loosening regulatory environment will take pressures and cost off the homebuilding process.
“The single-family home building market is facing competing concerns and opportunities for 2025,” said NAHB Chief Economist Robert Dietz.
“Given persistent affordability concerns, reducing inefficient regulatory costs would offer the best policy path to improve attainable housing supply and bring down shelter inflation.”
Overall permits being taken out didn’t rise much, increasing 0.1% to a rate of 1.48 million in January. Single-family permits sat at a rate of 996,000, unchanged from the prior month, while multifamily permits rose only slightly by 0.2% to a 487,000 annualized rate.
Peeking at regional data, the Northeast and South saw drops of 6.1% and 0.1% respectively, while the West and Midwest saw bumps of 2.3% and 1.8% in their respective markets.
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