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Townhouse Construction Expanded in 2024

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Townhouse construction expanded 10% during 2024, outpacing the rest of the single-family home building market.

According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the fourth quarter of 2024, single-family attached starts totaled 44,000. Over the last four quarters (2024 as a whole), townhouse construction starts totaled a strong 174,000 homes, which is 10% higher than the prior four-quarter period (158,000 in 2023). Townhouses made up 19% of single-family housing starts for the fourth quarter of the year, a data series high.

Using a one-year moving average, the market share of newly-built townhouses stood at 17.3% of all single-family starts for the fourth quarter. With recent gains, the four-quarter moving average market share is near the highest on record, for data going back to 1985.

Prior to the current cycle, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6% on a one-year moving average basis. This high point was set after a fairly consistent increase in the share beginning in the early 1990s.

The long-run prospects for townhouse construction are positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities. Where it can be zoned, it can be built.

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Housing Starts Retreat at the Start of 2025

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Constrained housing affordability conditions due to ongoing, elevated interest rates led to a reduction in single-family production to start the new year.

Overall housing starts decreased 9.8% in January to a seasonally adjusted annual rate of 1.37 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The January reading of 1.37 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months.

Within this overall number, single-family starts decreased 8.4% to a 993,000 seasonally adjusted annual rate; the January pace was 1.8% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, decreased 13.5% to an annualized 373,000 pace.

As mirrored in the NAHB/Wells Fargo HMI, high construction costs, elevated mortgage rates and challenging housing affordability conditions are causing builders to approach the market with caution. There are competing upside and downside risks, including discussed tariffs and regulatory reform. Given persistent affordability concerns, reducing inefficient regulatory costs would offer the best policy path to improve attainable housing supply and bring down shelter inflation.

On a regional basis compared to the previous month, combined single-family and multifamily starts are 27.6% lower in the Northeast, 10.4% lower in the Midwest, 23.3% lower in the South and 42.3% higher in the West.

Overall permits increased 0.1% to a 1.48 million unit annualized rate in January. Single-family permits were at a 996,000 annual unit rate, remaining unchanged compared to the previous month. Multifamily permits increased 0.2% to an annualized 487,000 pace.

Looking at regional permit data compared to the previous month, permits are 6.1% lower in the Northeast, 1.8% higher in the Midwest, 0.1% lower in the South and 2.3% higher in the West.

The number of single-family homes under construction in January is down 6.3% from a year ago, to 641,000 units. The number of multifamily units under construction is down 22.1% from a year ago, to 768,000 units.

There were 669,000 multifamily completions in January, up 11% from January 2024. For each apartment starting construction, there are 1.8 apartments completing the construction process.

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Builder Confidence Falls on Tariff and Housing Cost Concerns

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Builder sentiment fell sharply in February over concerns on tariffs, elevated mortgage rates and high housing costs.

Builder confidence in the market for newly built single-family homes was 42 in February, down five points from January and the lowest level in five months, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI. Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023.

With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs. Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44. Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing.

Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers. The latest HMI survey also revealed that 26% of builders cut home prices in February, down from 30% in January and the lowest share since May 2024. Meanwhile, the average price reduction was 5% in February, the same rate as the previous month. The use of sales incentives was 59% in February, down from 61% in January.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the major HMI indices posted losses in February. The HMI index gauging current sales conditions fell four points to 46, the component measuring sales expectations in the next six months plunged 13 points to 46, and the gauge charting traffic of prospective buyers posted a three-point decline to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points in February to 57, the Midwest moved two points lower to 45, the West edged one-point lower to 39 and the South held steady at 46. The HMI tables can be found at nahb.org/hmi.

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Builders’ Top Challenges for 2025

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The most significant challenge builders faced in 2024 was high interest rates, as reported by 91% of builders in the latest NAHB/Wells Fargo Housing Market Index survey.  A smaller, albeit still significant share of 78% expect interest rates to remain a problem in 2025. The next four most serious issues builders faced in 2024 were rising inflation in the U.S. economy (80%), buyers expecting prices/interest rates to decline (77%), the cost/availability of developed lots (63%), and the cost/availability of labor (61%).  Builders don’t expect much improvement in these challenges in 2025, except for rising inflation, which ‘only’ 52% see as a serious problem in the year ahead.

In addition to those top tier challenges, 55% to 60% of builders also reported facing serious problems in 2024 with gridlock/uncertainty in Washington (60%), building material prices (57%), concern about employment/economic situation (55%), impact/hook-up/inspection and other fees (55%), and negative media reports making buyers cautious (55%). Looking ahead at 2025, significantly fewer builders expect gridlock/uncertainty in Washington (32%) or have concerns about the employment/economic situation (39%).  In contrast, more builders are expecting building material prices to be a problem in 2025 (64%) and about the same expect continuing problems with impact and other fees (58%).

Builders have been asked about their most serious challenges every year since 2011. High interest rates have been a problem for a negligible share of builders (under 10%) during most years, except for 2022 (66%), 2023 (90%), and 2024 (91%).  When first introduced to the survey in 2021, 63% of builders reported challenges with rising inflation in the U.S. economy, but the share grew to at least 80% in 2022, 2023, and 2024. Prior to 2022, relatively few builders reported problems with buyers expecting prices or interest rates to fall, but that share rose to 49% in 2022, 71% in 2023, and 77% in 2024.

The cost/availability of developed lots has been a serious challenge to most builders in nine of the 14 years of the series history. In 2022, 51% of builders faced this problem; by 2024, 63% did—tying a record high set in 2019. Meanwhile, more than half of builders have reported the cost/availability of labor as a serious problem for the past 11 years in a row. While 82% and 85% of builders faced this challenge in 2021 and 2022, respectively, the share has eased to 73% in 2023 and to 61% in 2024.

For additional details, including a complete history for each reported and expected problem listed in the survey, please consult the full survey report.

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Limited Existing Inventory Provides a Boost for New Home Sales

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A limited amount of existing inventory along with solid demand helped new home sales end the year on an up note, even as buyers continue to grapple with housing affordability challenges.

Sales of newly built, single-family homes in December increased 3.6% to a 698,000 seasonally adjusted annual rate from an upwardly revised November number, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in December was up 6.7% compared to a year earlier.

New home sales ended 2024 2.5% higher over the 2023 total. NAHB is forecasting a slight gain for sales in 2025 given ongoing solid macroeconomic conditions, particularly for the labor market. Furthermore, builders are cautiously optimistic about the building market given a post-election policy reset that seeks to eliminate unnecessary regulations

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 December reading of 698,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in December continued to rise to a level of 494,000, up 10% compared to a year earlier. This represents an 8.5 months’ supply at the current building pace.

Completed ready-to-occupy inventory is up 46% to a level of 118,000, compared to a year ago.

NAHB estimates the combined new and existing total months’ supply (8.5 months’ supply for new homes while the much larger resale market was at 3.1) fell to just a 4 months’ supply in December, the lowest since April 2024. The market has not been near a 6 months’ supply, which represents a balanced market, since 2012.

The median new home sale price in December was $427,000, up 2.1% from a year ago.

Regionally, on a year-to-year basis for 2024 totals, new home sales were strongest in the Midwest, up 19% in 2024. Sales also rose 1.7% in the Northeast and 2.6% in the West but declined 0.2% in the South.

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New Home Sales Rose in November

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In November 2024, the U.S. housing market experienced a significant boost, with sales of new single-family homes reaching a seasonally adjusted annual rate of 664,000, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This marks a 5.9% increase from October’s revised figures and an 8.7% rise compared to November 2023. November new home sales are up 2.4% on a year-to-date basis.

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 November reading of 664,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in November remained elevated at a level of 490,000, up 8.9% compared to a year earlier. This represents an 8.9 months’ supply at the current building pace. A measure near a six months’ supply is considered balanced.

While an 8.9 months’ supply may be considered elevated in normal market conditions, there is currently only a 3.8 months’ supply of existing single-family homes on the market. Combined, new and existing total months’ supply remains below historic norms at approximately 4.5 months, although this measure is expected to increase as more home sellers test the market in the months ahead.

A year ago, there were 79,000 completed, ready-to-occupy homes available for sale (not seasonally adjusted). By the end of November 2024, that number increased 57% to 124,000. However, completed, ready-to-occupy inventory remains just 25% of total inventory, while homes under construction account for 54% of the inventory. The remaining 21% of new homes sold in November were homes that had not started construction when the sales contract was signed.

The median new home sale price in November edged down 5.4% to $402,600 and is down 6.3% from a year ago. In terms of affordability, the share of entry-level homes priced below $300,000 has been steadily falling in recent years. Only 25% of the homes were priced in this entry-level affordable range, while 31% of the homes were priced above $500,000. Most of the homes were priced between $300,000-$500,000.

Regionally, on a year-over-year basis, new home sales are up 13.6% in the South and 10.0% in the Midwest. New home sales are down 1.4% in the West and 11.5% in the Northeast.

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Single-Family Starts Posts Solid Gain While Multifamily Falters

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Ongoing lean levels of single-family existing home inventory helped to boost single-family production in November, while overall housing production fell because of a double-digit percentage drop in multifamily construction.

Overall housing starts decreased 1.8% in November to a seasonally adjusted annual rate of 1.29 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The November reading of 1.29 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 6.4% to a 1.01 million seasonally adjusted annual rate. On a year-to-date basis, single-family construction is up 7.2%. The multifamily sector, which includes apartment buildings and condos, decreased 23.2% to an annualized 278,000 pace.

While the pace of single-family starts increased in November, single-family permitting was flat as builders face mixed market conditions that include an election result that promises a focus on regulatory relief, but ongoing elevated mortgage rates.

NAHB is forecasting single-family starts to post a slight increase in 2025 as the financing conditions for builders improve modestly. The significant decline for apartment construction is forecasted to end next year, with that market stabilizing during the second half of 2025.

On a regional and year-to-date basis, combined single-family and multifamily starts are 7.3% higher in the Northeast, 2.4% lower in the Midwest, 5.8% lower in the South and 5.9% lower in the West.

Overall permits increased 6.1% to a 1.51 million unit annualized rate in November. Single-family permits increased 0.1% to a 972,000 unit rate and are up 8.0% on a year-to-date basis. Multifamily permits increased 19.0% to an annualized 533,000 pace.

Looking at regional data on a year-to-date basis, permits are 3.2% higher in the Northeast, 4.8% higher in the Midwest, 2.5% lower in the South and 7.0% lower in the West.

The number of single-family units under construction is down 6.3% from a year ago, declining to 637,000 homes. The number of multifamily units under construction is down 20.5% from a year ago, to 797,000 units.

In November, there were two multifamily units completed for every one unit starting construction. Two years ago, there were just 0.7 multifamily units being completed for every 1 unit starting construction.

The count of multifamily units in 5-plus unit properties units completing construction of is up 36.1% on a year-to-date basis for 2024. In contrast, single-family completions are up 3.6% on a year-to-date basis.

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October New Home Sales Down on Higher Rates

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Steadily rising mortgage rates coupled with ongoing affordability challenges kept many potential home buyers on the sidelines in October. Sales of newly built, single-family homes in October declined 17.3% to a 610,000 seasonally adjusted annual rate, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in October is down 9.4% compared to a year earlier. October new home sales are up 2.1% on a year-to-date basis.

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 October reading of 610,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in October remained elevated at a level of 481,000, up 8.8% compared to a year earlier. This represents a 9.5 months’ supply at the current sales pace. A measure near a six months’ supply is considered balanced.

While a 9.5 months’ supply may be considered elevated in normal market conditions, there is currently only a 4.2 months’ supply of existing single-family homes on the market. Combined, new and existing total months’ supply remains below historic norms at approximately 4.9 months, although this measure is expected to increase as more home sellers test the market in the months ahead.

A year ago, there were 76,000 completed, ready-to-occupy homes available for sale (not seasonally adjusted). By the end of October 2024, that number increased 52.6% to 116,000. However, completed, ready-to-occupy inventory remains just 24% of total inventory, while homes under construction account for 55% of the inventory. The remaining 22% of new homes sold in October were homes that had not started construction when the sales contract was signed.

The median new home sale price in October edged up 2.5% to $437,300 and is up 4.7% from a year ago. In terms of affordability, the share of entry-level homes priced below $300,000 has been steadily falling in recent years. Only 13% of the homes were priced in this entry-level affordable range, while 37% of the homes were priced above $500,000. Most of the homes were priced between $300,000-$500,000.

Regionally, on a year-over-year basis, new home sales are up 35.3% in the Northeast and 15.9% in the Midwest. New home sales are down 19.7% in the South and 1.3% in the West.

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Single-Family Home Size Nearing Turning Point?

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An expected impact of the virus crisis was a need for more residential space, as people used homes for more purposes including work. Home size correspondingly increased in 2021 as interest rates reached historic lows. However, as interest rates increased in 2022 and 2023, and housing affordability worsened, the demand for home size has trended lower. With lower long-term interest rates coming in view, will new single-family home size reverse and move higher in 2025?

According to third quarter 2024 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was 2,158 square feet, just off the lowest reading since the second half of 2009. Average (mean) square footage for new single-family homes registered at 2,348 square feet.

The average size of a new single-family home, on a one-year moving average basis, trended lower to 2,366 square feet, while the median size is at 2,150 square feet.

Home size increased from 2009 to 2015 as entry-level new construction lost market share. Home size declined between 2016 and 2020 as more starter homes were developed. After a brief increase during the post-COVID building boom, home size has trended lower due to declining affordability conditions. As interest rates decline, new home size could level off and increase in the quarters ahead.

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Flat Conditions for Custom Home Building

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NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates relatively flat conditions for custom home builders after a period slight softening of market share due to declining mortgage interest rates. However, post-election stock market gains should support custom building at the end of 2024 and going into 2025.

There were 48,000 total custom building starts during the third quarter of 2024. This marks a 4% decline compared to the third quarter of 2023. Over the last four quarters, custom housing starts totaled 178,000 homes, just below a 1% decline compared to the prior four quarter total (179,000).

After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until 2023 and then entered a period of retrenchment. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has fallen back to 17%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009 and a 21% local peak rate at the beginning of 2023.

Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.

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