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March 18, 2025

Housing starts, another name for new home construction, jumped 11.2% in February after January starts were revised lower. Both single and multifamily starts gained in the month after an unusually cold and snowy January, especially in the South. All regions except the Midwest had stronger starts. It is hard to build amidst snow in the South, the largest market for home builders. Compared to a year ago, starts were 2.9% lower.

Single-family starts rose 11.4% to 1.1 million units, the highest level in a year. Completions of single-family homes jumped 7.1% to the highest level since July. This is welcome news for the supply-constrained housing market but does not move the needle much on affordability challenges. The rising costs of taxes and insurance only add insult to injury for sidelined home buyers. Mortgage rates remain around 6.7% in mid-March.

Multifamily starts soared 12.1% in February but remained 6.6% lower than a year ago. Multifamily completions continue to trend lower as record backlogs are completed. Around 512,000 units were completed in February, nearly 16% lower than a year ago. Regions that have seen the largest supply of new apartments have seen average rents falling; that is expected to reverse by year-end as the pipeline of new apartments dries up.

Demand for rentals is strong, given the increased new household formations by the Millennial and Gen Z generations. Younger people still want to live in cities. According to the Census bureau, the population of metro areas increased by 1.1% in 2024 from a year prior, especially in the South and West regions. The total U.S. population only increased by 1%, meaning more people moved to the cities during this time. The pandemic-era rural exodus is behind us. International immigration supports the growth of cities as well, which is expected to slow significantly compared to the prior few years.

Housing permits, a signal of future construction, fell 1.2% in February on lower multifamily permits. Single-family permits were essentially flat in the month. The largest drops for multifamily were in the Northeast and West, with some declines in the South. The Midwest had the strongest multifamily permit growth; the region is not experiencing the apartment building boom that the South has recently.

Builder sentiment continued to sour in March as heightened concerns over a trade war and rising input costs are putting projects on hold. Construction sector job openings fell by 42% compared to a year ago in January while layoffs remained subdued. This signals a pausing of projects along with some labor hoarding. The construction sector heavily relies on immigrant workers.