Single-Family Permits Rebounded in January, Followed by Steady Sales and Rising Sentiment

April 4th, 2024 by Editor

The latest stats from the National Association of Homebuilders (NAHB) spell good news for door and window dealers. The organization reported that in January 2024, the total number of single-family permits issued year to date (YTD) nationwide reached 75,906 — an increase of 43.1% over the January 2023 level of 53,062.

The association reports that single-family permits were up across all four geographic regions in January, with permit increases in the West showing the biggest change, clocking a 67% rise, while the fewest were found in the Northeast, at 19.4%. The South was up by 39.4%, and the Midwest by 36.5%.

For multifamily permits, the regions were split, with the Northeast and Midwest posting increases of 64.5% and 13.6%, respectively, while the South and West saw declines of 32.5% and 27.9%, accordingly.

Forty-four states posted an increase in single-family permits in January 2024 compared to January 2023, according to NAHB, with Nevada showing the biggest increase (128%) and Mississippi having the least (2.4%) increase. The 10 states issuing the highest number of single-family permits combined accounted for 67.7% of the total single-family permits issued.

The total number of multifamily permits issued nationwide reached 38,870, year to date, ending in January. This is 18.9% below the January 2023 level of 47,936.

Twenty-one states recorded growth in multifamily permits in January 2024 compared to January 2023, while 29 states and the District of Columbia recorded a decline. Wyoming had a sharp rise in multifamily permits from nine to 43 (+377.8%), while Alaska had the greatest decline from 54 to zero. The 10 states issuing the highest number of multifamily permits combined accounted for 68.1% of the multifamily permits issued.

Added to those numbers, the NAHB points to a lack of existing homes inventory driving buyers to new home construction, coupled with strong demand and mortgage rates below last fall’s cycle peak helping push builder sentiment above the halfway mark in March.

From Permits to Home Sales

A small rise in mortgage rates in February brought new home sales to a draw, the organization reports. Sales of newly built, single-family homes in February edged 0.3% lower to a 662,000 seasonally adjusted annual rate, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in February was up 5.9% from a year earlier.

“While new home sales remained flat in February, our latest home builder surveys show increased levels of confidence driven by the ongoing lean levels of existing home inventory,” said NAHB chair Carl Harris. “As interest rates subside over the course of 2024, additional home buyers will be priced into the market and new construction will be needed to meet this demand.”

Mortgage rates averaged 6.78% in February compared to 6.64% in January, according to Freddie Mac.

“A slight uptick in mortgage rates held back the pace of new home sales in February,” said NAHB chief economist Robert Dietz. “Our latest builder surveys show that roughly one quarter of builders reported cutting home prices in March. The price cuts, in combination with building slightly smaller homes, can be seen in today’s data that show a 7.6% year-over-year decline for median new home prices.”

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 662,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in February remained elevated at a level of 463,000, up 1.3% from January. This represents an 8.4-month supply at the current building pace. A measure near a six-month supply is considered balanced. However, with only a 2.9-month supply of existing homes for sale, new home inventory can remain above this balanced measure.

The median new home sale price in February was $400,500, edging down 3.5% from January, and down 7.6% compared to a year ago.

Permits + Sales = More Confident Builders

After all that, the NAHB/Wells Fargo Housing Market Index (HMI) showed builder confidence in the market for newly built single-family homes reaching 51 in the month of March. That’s the highest reading it has reached—and the first time the number has passed the breakeven point—since July 2023, marking the fourth consecutive monthly gain for the index, according to the organization.

“Buyer demand remains brisk and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” said Harris, who is also a custom home builder from Wichita, Kansas. “But even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes.”

Mortgage rates have been below 7% since mid-December, per Freddie Mac, which has effectively reduced home prices to boost sales.

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