• Building permits issued in January fell to 1,470,000 (SAAR). That’s 1.5% below the revised December rate but still 8.6% higher than a year ago.
• Housing starts eased to 1,331,000 (SAAR) in January, down 14.8% from the revised December estimate and just 0.7% below last January’s rate, according to the U.S. Census Bureau. 
• Single family housing starts fell to 1,004,000 (SAAR) in January, down 4.7% from December but 22% above last January.

What happened: A near record number of apartment buildings currently under construction contributed to a decline in housing starts at the start of the year. Despite the slowdown in January, single family starts trended up for most of 2023. While steady demand for housing should support single family home construction, rising land costs and the risk of higher for longer interest rates are potential headwinds.

Why this matters: If sustained, large declines in housing starts could indicate that the US economy may be cooling faster than previously thought. However, single family building permits are rising, builder confidence is on the rise, mortgage applications have risen for 6 consecutive weeks and the share of builders reporting cutting their prices is falling according to the National Association of Home Builders. 

Despite last month’s overall decline in housing starts, single family starts remain well above last year’s pace, signaling that builders are cautiously optimistic that buyers are coming back. Historically, the flow of home buyers and the flow of for-sale listings have been positively correlated.

Due to more than a decade of underbuilding, a significant shortage of housing options led to America’s housing affordability crisis. 

In the rental market, apartment rent growth has cooled – partly due to a large increase in the supply of apartment buildings. However, single family rents accelerated in January. 

Upward revisions to population growth, higher inflation-adjusted incomes when compared to a year ago are expected to support housing demand – underscoring the need for a sustained increase in the supply of newly built homes.