December Housing Starts: Despite Improvements, New Construction Ends Lower In 2023

• Housing permits issued in December were up 1.9% from November and up 6.1% from a year ago, to 1,495,000 (SAAR).  Overall, 1,469,800 housing units were authorized by building permits in 2023, down 11.7% from 2022.
• Housing starts eased to 1.46 million (SAAR) in December, down 4.3% from the revised November 2023 estimate but still 7.6% above the December 2022 rate, according to the U.S. Census Bureau. Single family housing starts increased to 1,027,000 (SAAR) in December, down 8.6% from November. Overall, 1,413,100 housing units were started in 2023, down 9% from 2022.
• An estimated 1,452,500 homes were completed in 2023. That’s a 4.5% increase from the previous year.

What happened: A backlog of homes under construction contributed to a decline in housing permits and starts in 2023. Although ending lower for the year, new construction made significant improvements with single family starts rebounding from a deep freeze at the end of 2022. More homes were also completed in 2023.

Despite a 9% decline in housing starts for the year, the number of housing units started last year still exceeded the number of homes that were started before the pandemic - up nearly 10% from 2019. While starts of single-unit structures fell just 6% in 2023, the bulk of the decline in starts came from structures with 2 or more units - down roughly 14% this year.  

Why this matters: Due to more than a decade of underbuilding, a significant shortage of housing options is fueling America’s housing affordability crisis. Despite a 4.5% increase in the number of completed homes in 2023, more supply is still needed. Unfortunately, with fewer homes under construction and housing starts also falling in 2023, fewer home completions are expected at the start of 2024 when compared to a year ago.

However, cooling inflation and the Federal Reserve pivot that led to the recent decline in mortgage rates from their October 23-year high are tailwinds for building activity in 2024. The share of builders cutting their prices fell, according to the National Association of Home Builders. Steady demand for housing and rising builder sentiment could fuel an uptick in starts in the first half of the year, which would be welcomed news for home shoppers.