The National Association of Homebuilders (NAHB) reported recently that, according to Freddie Mac, housing starts edged lower in October as average monthly mortgage rates increased a quarter-point (from 6.18% to 6.43%).
Overall housing starts decreased 3.1% in October to a seasonally adjusted annual rate of 1.31 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
Meanwhile, “Further interest rate cuts from the Federal Reserve through 2025 should result in lower interest rates for construction and development loans, helping to lead to a stabilization for apartment construction and expansion for single-family home building,” said NAHB chief economist Robert Dietz.
The October reading of 1.31 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 6.9% to a 970,000 seasonally adjusted annual rate. On a year-to-date basis, single-family construction is up 9.3%. The multifamily sector, which includes apartment buildings and condos, increased 9.6% to an annualized 341,000 pace but is down 29.3% on a year-to-date basis.
“Although housing starts declined in October, builder sentiment improved for a third straight month in November as builders anticipate an improved regulatory environment in 2025 that will allow the industry to increase housing supply,” said NAHB chair Carl Harris.
Harris was referring to the recent NAHB/Wells Fargo Housing Market Index (HMI), which showed builder confidence in the market for newly built single-family homes at 46 in November, up three points from October.
“With the elections now in the rearview mirror, builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” Harris continued. “This is reflected in a huge jump in builder sales expectations over the next six months.”
The latest HMI survey also revealed that 31% of builders cut home prices in November. This share has remained essentially unchanged since July, hovering between 31% and 33%. Meanwhile, the average price reduction was 5%, slightly below the 6% rate posted in October. The use of sales incentives was at 60% in November, slightly down from 62% in October.
“While builder confidence is improving, the industry still faces many headwinds such as an ongoing shortage of labor and buildable lots along with elevated building material prices,” said Dietz. “Moreover, while the stock market cheered the election result, the bond market has concerns, as indicated by a rise for long-term interest rates. There is also policy uncertainty in front of the business sector and housing market as the executive branch changes hands.”
All three HMI sub-indices were up in November, including the index charting current sales conditions, the component measuring sales expectations in the next six months and the gauge charting traffic of prospective buyers.
But will it be enough? Builder confidence will only get the industry as far as the public’s ability to purchase new homes, NAHB officials suggested. The NAHB/Wells Fargo Cost of Housing Index (CHI) found that in the third quarter of 2024, a family earning the nation’s median income of $97,800 needed 38% of its income to cover the mortgage payment on a median-priced new home. As it stands, low-income families (those earning only 50% of median income) would have to spend 75% of their earnings to pay for the same new home.
The figures track identically for the purchase of existing homes in the U.S. as well, NAHB reported.
“The Cost of Housing Index underscores the severity of the housing affordability crisis in countless communities across the nation,” said Harris. “NAHB’s 10-point housing plan directly addresses this critical issue by focusing on the need to tackle burdensome regulations, permitting roadblocks, inefficient building material supply chains and other factors that are preventing builders from constructing additional homes that our nation desperately needs.”
There was no change in the percentage of a family’s income needed to purchase a new home (38%) between the second and third quarters of 2024, but affordability did improve slightly for low-income families, falling from 77% to 75%.
According to NAHB data, in 10 out of 176 markets in the third quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 85 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 81 markets where the CHI is 30% of earnings or lower.
San Jose-Sunnyvale-Santa Clara, California, was the most severely cost-burdened market on the CHI, where 85% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:
- Urban Honolulu, Hawaii (75%);
- San Diego-Chula Vista-Carlsbad, California (70%);
- San Francisco-Oakland-Berkeley, California (68%); and
- Miami-Fort Lauderdale-Pompano Beach, Florida (63%).
Low-income families would have to pay between 127% and 170% of their income in all five of the above markets to cover a mortgage.
On the opposite end of the scale, Decatur, Illinois, was the least cost-burdened markets on the CHI, where typical families needed to spend just 16% of their income to pay for a mortgage on an existing home. The least burdened markets are:
- Cumberland, Maryland-West Virginia (18%);
- Springfield, Illinois (18%);
- Elmira, New York (19%);
- Peoria, Illinois (19%).
Low-income families in these markets would have to pay between 33% and 39% of their income to cover the mortgage payment for a median-priced existing home.