U.S. housing starts drop to slowest pace in five months

U.S. new-home construction fell in January, indicating the recovery in the housing market will be gradual as many buyers await a further decline in mortgage rates.

Residential starts decreased 14.8% last month to a 1.3 million annualized rate, the slowest pace since August, government data showed Friday. Multifamily home construction plummeted by more than 35% after surging in the prior month, while single-family groundbreakings also slowed.

The median estimate in a Bloomberg survey of economists called for a 1.46 million pace of total starts.

Building permits, a proxy for future construction, decreased to a 1.5 million rate. Permits for one-family homes edged higher after rising consistently throughout 2023, and multifamily authorizations fell 7.9%, the most since September.

The housing market’s recovery has struggled to maintain momentum as mortgage rates are still elevated near 7%.

However, the nation’s builders have been gaining confidence in recent months on expectations that a further decline in borrowing costs will boost demand.

So far, builders have enjoyed limited competition from existing homes for sale. Homes available on the resale market are well below pre-pandemic levels as most owners remain reluctant to give up mortgages locked in at much cheaper rates.

At the same time, the inventory of new houses for sale remains elevated and suggests builders may be cautious about beginning new projects.

The government’s report showed housing starts fell in all four of the nation’s regions, led by the Midwest and Northeast. The number of single-family homes completed plunged to the lowest level since May 2020.

The National Association of Realtors will give a glimpse of the nation’s resale market Feb. 22, when it releases existing-home sales figures for January.

A separate report Friday showed prices paid to U.S. producers rose in January by more than forecast, highlighting the sticky nature of inflation.