January 17, 2025

Housing starts jumped 15.8% in December to 1,499 thousand after  having declined 3,7% in November.  The increase consisted of a 3.3% increase in single-family homes and a whopping 58.9% increase in the very volatile multi-family category.  With big increases in the Northeast and the South it is likely that at least part of the unexpected jump in starts reflects the beginning of a major rebuilding effort following Hurricanes Helene and Milton.  The same should happen in the Los Angeles area as the year progresses,

Builder confidence has been climbing in recent months.  Homebuilders are confident that the change in power in Washington will result in significant regulatory relief for the industry.   However, builders are dealing with an extreme shortage of available lots, and local red tape which — at the moment — is retarding their willingness to boost the output of new homes and apartments.

Housing affordability depends on three factors — mortgage rates, home prices, and consumer income.  Mortgage rates should  decline from 6.8% currently to 5.8% by the end of next year..  Home prices may remain at roughly their current level as the shortage of available housing puts upward pressure on prices..  At the same time, consumer income will continue to climb as jobs are created and hourly earnings steadily climb.  As a result, housing affordability should increase somewhat as the year progresses.  A median-income family today has 2% more income than is required to purchase a median-priced home.  We believe that by the end of this year that same median-income earning family will have 15% more income than is required to purchase a median-priced home.  That should help.

Potential home buyers today cannot find an adequate supply of existing homes to purchase.  The supply of existing homes on the market has risen in recent months but it still remains low.  The problem is that current owners have been unwilling to trade a 3.0-3.5% mortgage rate for a 6.9% one.  But recent data suggest that they now feel they have waited long enough and are willing to pull the trigger and sell.

Building permits — which are less volatile than starts — declined 0.7% in December to 1,483 thousand after having jumped 5.2% in November.   It is difficult for builders to find an adequate number of workers and available lots at affordable prices.  This will curtail the number of houses that builders are able to start. However, in our opinion, the housing sector has hit bottom and will increase slowly in the months ahead.  With permits in recent months consistently between 1,450-1,500 thousand, starts should be at roughly that same level .

Our best guess is that starts will increase about 8.0% in 2025 to 1,600 thousand or so by the end of this year.

We currently expect GDP growth of 2.5% growth in the fourth quarter and 2.9% in 2025..

Stephen Slifer

NumberNomics

Charleston, S.C.