Multi-Family Building Permits Up 22 Percent

A "For Sale" sign in front of a home in Arlington, Va., on Aug. 22, 2023. Andrew Caballero-Reynolds/AFP via Getty Images

Permits for constructing residential buildings rose last month in the United States, but single family home permits were largely unchanged as market conditions remained uncertain for builders. Building permits are a reliable indicator of the level of market demand for new homes.

Overall, building permits were up 6.1 percent in November compared to the previous month on a seasonally adjusted annual rate, said a Dec. 18 statement from the U.S. Census Bureau.

The overall jump in numbers was driven by an increase in permits for multi-family buildings with five or more units, which surged by more than 22 percent.

In contrast, single-family housing permits mostly remained flat, rising by only a marginal 0.1 percent. The numbers “were flat as builders face mixed market conditions that include an election result that promises a focus on regulatory relief, but ongoing elevated mortgage rates,” said Carl Harris, chairman of the National Association of Home Builders (NAHB).

The average weekly rate for a 30-year fixed-rate mortgage has been above the 6 percent level for over two months. While the rate recently came down to 6.08 percent in September, it did not trend down further but reversed course and is currently at 6.72 percent.

Meanwhile, housing starts presented a different picture of the market. Housing starts, indicating the beginning of new residential unit construction, fell by 1.8 percent monthly in November.

Single family starts rose by 6.4 percent while multi-family crashed by over 24 percent.

Even though single-family housing starts rebounded in November, it was not enough to cover the October decline, real estate marketplace Zillow said in a Dec. 18 post.

“Rising housing inventory coupled with higher uncertainty about the future path of mortgage rates is causing builders to proceed with caution. Multifamily starts continued to fall, raising concerns about a large decline in supply in the year ahead,” it warned.

Builders are also troubled by the increased costs of construction and a lack of buildable lots, Harris said. NAHB predicts concerns about inflation to keep mortgage rates above six percent next year. The organization revised down the expected rate cuts from the U.S. Federal Reserve in 2025 from 100 basis points to 75.

Mortgage Rate Challenge

The U.S. Federal Reserve brought down its benchmark interest rates to a range of 4.25 to 4.5 percent in a recent December meeting.

Despite the rate cut, “it won’t mean imminent relief for mortgage rates” since investors were already expecting this development, according to a Dec. 18 post by real estate listings website Realtor.

The central bank has suggested slowing down the pace of rate cuts in 2025, which is reflective of higher inflation numbers this year as well as expectations of the trend continuing next year, Fed chair Jerome Powell said during a press conference.

Powell also acknowledged that “housing activity is very low, and that’s partly significantly because of our policy.”

Danielle Hale, chief economist at Realtor, is predicting a “bump in home sales and modest deceleration in home prices” next year, citing strength in the economy. However, “that doesn’t mean that the housing market is without challenges,” she said.

“Buying a home still takes a larger share of your paycheck today than in recent history, but income growth in 2025 is expected to start to reverse that trend, and if homebuilders ramp up production, as expected, we will start to close the gap on the housing shortage that has long been a thorn in the side of homebuyers, especially first-time homebuyers.”

Fannie Mae Senior Vice President Mark Palim expects 2025 housing affordability to “look a lot like” this year.

Home price growth is expected to remain positive despite easing down; mortgage rates are predicted to be above 6 percent; and housing supply is forecast to be below pre-pandemic levels.

“Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates,” said Palim.

“But, on average, we expect mortgage rates to remain elevated and a hindrance to activity.”