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U.S. Housing Starts Drop 3.1% as Mortgage Rates Hit 6.72% in October

U.S. housing starts fell to a seasonally adjusted annual rate of 1.31 million in October, down 3.1% from September’s revised numbers. The rate of 1.31 million represents how many homes would be constructed within the year if the rate held throughout.

Single family housing starts dropped in October as well, down to 970,000, a 6.9% decrease from September, and a 0.5% decrease from October of last year. Multifamily construction, meanwhile, was up 9.8% since September, rising to 326,000 in October. These numbers, however, are still 12.6% lower than October of last year.

The lower rate came as a surprise to Wall Street, marking the lowest starts have been since July.

Projects are suspected to have slowed in October as homebuilders pared back construction in anticipation of potential policy shifts, both from the federal reserve and the incoming presidential administration.

Additionally, rising mortgage rates saw a marked pullback from homebuilders under expectations that a tighter rate environment would keep demand muted. These expectations have been somewhat confirmed, as in the last week of October, as mortgage rates hit 6.72%, mortgage applications began to see a slight pullback.

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Despite this, the most recent rate decrease saw a jump in contractor backlogs, with many contractors expecting steady growth into 2025.

Builder Confidence High, Despite Economists’ Mixed Feelings

Following the results of the 2024 election, builder confidence as rated by the Wells Fargo and National Association of Homebuilders (NAHB) Housing Market Index (HMI) rose across all three categories in November. This was largely attributed to expected regulatory improvements for the homebuilding sector.

Current sales conditions rose two points to 49. Sales expectations in the next six months increased seven points to 64. And the traffic of prospective buyers posted a three-point gain to 32. The survey also revealed that 31% of builders cut home prices in November, keeping with a consistent trend that started back in July.

The average price reduction recorded was 5% while the use of sales incentives was set at 60%.

Construction permits, a general indicator for anticipated construction growth, remained either flat or down in October, with the total rate of permits being taken out dropping to 1.41 million, down 0.6% from September and down 7.7% YoY.

Single family permits rose slightly in October, up 0.5% to 968,000 from September, but remain down 1.8% YoY. Multifamily permits for 5 units or more continued their slide down 3% from September and 20.9% YoY to 393,000 being taken out in October.

This was accompanied by an increase in construction costs in October, with economists uncertain how well raw material costs will hold up under the upcoming administration.

“The next administration’s trade policies bring further unpredictability to construction material costs,” noted ABC Chief Economist Anirban Basu.  

“Potential tariffs could push input prices higher if purchasers preemptively import materials before such policies are implemented. As of October, contractors anticipated profit margin growth through the first quarter of 2025, according to ABC’s Construction Confidence Index. That portion of the index will be closely monitored as trade policies evolve in the coming months.”

Housing Completions Slide in October as South Recovers from Hurricanes

U.S. housing completions also dropped in October to 1.61 million, down 4.4% from September. Completions remain largely up compared to last year, however, being 16.8% higher than in 2023.

Single family completions were also down monthly, 1.4% to 986,000, while remaining largely consistent with last year’s numbers, down a mere 0.2%.

On a regional basis permits were up 13.4% in the Northeast, down 4% in the Midwest, down 1.8% in the South, and down 1.2% in the West since September.

New housing starts in October were down 32.9% MoM in the Northeast, up 9.4% in the Midwest, down 8.8% in the south, and up 21.1% out West.

“The decline in housing starts in October was exactly as we had expected given the hit to construction in the South from Hurricane Milton and should partially reverse in November,” Bradley Saunders, an economist at Capital Economics, wrote.

“Beyond this we think the recent rebound in new sales and rising homebuilder confidence will help [housing] starts to rise to a peak of 1.08 million [annualized] in the second half of 2025.”

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