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Single-Family Starts Trend Higher in September

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With the Federal Reserve beginning an easing of monetary policy and builder sentiment improving, single-family starts posted a modest gain in September while multifamily construction continued to weaken because of tight financing and an ongoing rise in completed apartments.

Overall housing starts decreased 0.5% in September to a seasonally adjusted annual rate of 1.35 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The September reading of 1.35 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 2.7% to a 1.03 million seasonally adjusted annual rate. On a year-to-date basis, single-family construction is up 10.1%. The September gain for single-family home building mirrored an increase for the NAHB/Wells Fargo HMI.

While single-family home building increased in September, higher mortgage interest rates in October are likely to place a damper on growth in next month’s data. Nonetheless, NAHB is forecasting a gradual, if uneven, decline for mortgage rates in the coming quarters, with corresponding increases for single-family construction.

The multifamily sector, which includes apartment buildings and condos, decreased 9.4% to an annualized 327,000 pace. This marks the weakest pace since May. Multifamily construction will remain weak as completions of apartments are elevated.

On a regional and year-to-date basis, combined single-family and multifamily starts are 9.0% higher in the Northeast, 2.0% lower in the Midwest, 4.6% lower in the South and 5.4% lower in the West.

Overall permits decreased 2.9% to a 1.43 million unit annualized rate in September. Single-family permits increased 0.3% to a 970,000 unit rate. Multifamily permits decreased 8.9% to an annualized 458,000 pace. This is the weakest reading since May.

Looking at regional data on a year-to-date basis, permits are 0.8% higher in the Northeast, 2.6% higher in the Midwest, 2.2% lower in the South and 5.1% lower in the West.

The number of single-family homes under active construction totaled 642,000 in September. After stabilizing recently, this is down just 4.5% from a year ago. The number of multifamily units under construction declined 3.4% in September to an 842,000 total. This is 16.5% lower than a year ago and is the smallest count since February 2022.

As a sign of the reversal for multifamily construction, the seasonally adjusted annual rate of multifamily construction was 680,000 in September. This was roughly twice the pace of multifamily starts, meaning for every two apartments finishing construction, only one new unit began construction. The pace of multifamily completions was up 41% compared to a year ago.

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Builder Confidence Edges Higher Despite Affordability Headwinds

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With inflation gradually easing and builders anticipating mortgage rates will moderate in coming months, builder sentiment moved higher for a second consecutive month despite challenging affordability conditions.

Builder confidence in the market for newly built single-family homes was 43 in October, up two points from a reading of 41 in September, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

Despite the beginning of the Fed’s easing cycle, many prospective home buyers remain on the sideline waiting for lower interest rates. We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development and construction loans. However, while housing affordability remains low, builders are feeling more optimistic about 2025 market conditions. A wildcard for the outlook remains the election.

The latest HMI survey also revealed that the share of builders cutting prices held steady at 32% in October, the same rate as last month. Meanwhile, the average price reduction returned to the long-term trend of 6% after dropping to 5% in September. The use of sales incentives was 62% in October, slightly up from 61% in September.

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 HMI indices were up in October. The index charting current sales conditions rose two points to 47, the component measuring sales expectations in the next six months increased four points to 57 and the gauge charting traffic of prospective buyers posted a two-point gain to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased two points to 51, the Midwest moved two points higher to 41, the South held steady at 41 and the West increased three points to 41. The HMI tables can be found at nahb.org/hmi.

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Community Associations on the Rise in 2023

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In 2023, 64.8% of all new single-family homes started were built within a community or homeowner’s association. This share increased from the 62.6% recorded in 2022, according to data tabulated from the Census Bureau’s Survey of Construction (SOC). This marks the third highest share since the beginning of the series in 2009, after the high point of 67.1% in 2020 and 65.5% in 2021.  Prior to 2021, the share had been on a decade-long upward trend.  In absolute numbers, a total of 601,558 homes were started in community associations in 2023.

The Census Bureau defines community or homeowner’s associations as “formal legal entities created to maintain common areas of a development and to enforce private deed restrictions; these organizations are usually created when the development is built, and membership is mandatory.”

A recent NAHB study, What Home Buyers Really Want,  asked recent and prospective home buyers to rate the influence that 29 community features would have on their purchase decision.  For more than 65% of buyers, being near retail space and park areas, and having walking/jogging trails are the most influential community features. In contrast, only 39% feel the same way about a homeowner’s association.

When analyzed by the nine census divisions, the highest share of new homes started within a homeowner’s association was in the Mountain Division, where 81.9% of new homes were in such communities. In the Middle Atlantic Division, on the other hand, the share was only 28.6%. The share of new homes started within a community across U.S. divisions are shown in the map below.

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Patios Continue to Crowd Out Decks on New Homes

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While the share of new homes with patios continues to climb, the share with decks has hovered at a historic low of under 18%, according to NAHB tabulation of data from the HUD/Census Bureau Survey of Construction (SOC).

Every year from the re-design of the SOC in 2005 through 2018, over 22% of single-family homes started featured decks. After that, however, the share dropped significantly, reaching a low of 17.5% in 2021. Since then, the percentage has remained near that trough, at 17.7% in 2022 and 17.6% in 2023. Moreover, this has been occurring at the same time the share of new homes with patios was climbing to a record high 67.7%. In fact, the tendency of deck and patio percentages to move in opposite directions is evident throughout the 2005-2023 period. The correlation between the percentages over that span is -0.84, suggesting that patios on new homes have been functioning as a substitute for decks. When more new homes have patios, fewer have decks.

New homes with both a deck and patio do occur but are comparatively rare. Among single-family homes started in 2023, fewer than 6% featured both a deck and a patio.

Decks have been more common not only when but where patios are less common. For example, among single-family homes started in 2023, patios were least common (featured ion only 17% of the homes) in the New England Census Division, the same division where a high of 76% of the homes featured decks. At the other extreme, in the West South Central a divisional high 81% of new homes featured patios in 2023, and a divisional low of 3% featured decks. Across all nine divisions in 2023, the correlation between the percentages of new homes with decks and patios was -0.82.

Nevertheless, decks remain relatively popular on new homes in some parts of the country. Following the 76% in New England at a distance, 42% of new homes featured decks in 2023 in both the Middle Atlantic and West North Central divisions.

More detail on new home deck construction is available from the Annual Builder Practices Survey (BPS) conducted by Home Innovation Research Labs.

Nationally, the 2024 BPS report (based on homes built in 2023) shows that the average size of a deck on a new single-family home is 284 square feet. Across Census divisions, the average size ranges from a low of 230 square feet in New England to a high of 382 square feet in the adjacent Middle Atlantic.

On a square foot basis, the BPS shows an evolving geographic split in the material builders use most often in deck construction. In the West North Central, South Atlantic, East South Central and West South Central divisions, treated wood remains the top choice. In the New England, Middle Atlantic, East North Central and Mountain divisions, composite material has moved ahead of treated wood; while in the Pacific Division, concrete edged out composite for the top spot. The Pacific is also the only division where redwood (a species that can be used outdoors without special pressure treatment) is relatively common in new home deck construction.

A previous post covered the characteristics of patios on single-family homes built in 2023.

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Home Buyers Want Technology to Improve Energy Efficiency and Increase Safety

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NAHB published research earlier this year on home buyer preferences called What Home Buyers Really Want. Consumers were asked to rate how 19 technology features would influence their home purchase decision, if at all, using the following four-point scale:

Do not want – not likely to buy a home with this design or feature.

Indifferent – wouldn’t influence decision.

Desirable – would be seriously influenced to purchase a home because this design or feature was included.

Essential/Must have – unlikely to purchase a home without this design or feature

Seventy-eight percent of home buyers rated a programmable thermostat as either essential/must have or desirable, followed by security cameras (76%), video doorbell (74%), and wireless home security system (70%).  Sixteen of the 19 technology features had at least 50% of home buyers rating them as essential or desirable.

The top eight features reveal that home buyers are looking for technology that helps them achieve two main goals:

Improve Energy Efficiency (programmable thermostat, multi-zone HVAC system, lighting control system, energy management system/display) AND

Increase Safety (security cameras, video doorbell, wireless & wired home security system)

Additionally, like the other areas of the home covered in the study, every question on technology features is tabulated by the buyer’s income, age, geography, race, household type, and the price they expect to pay for the home. These details can be very useful in particular cases. For example, the study discusses the five technology features that have the largest preference margins between the youngest and oldest buyers along with analyzing the prevalence of virtual tours by income and price point. 

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Parking Garages for New Homes 2023

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In 2023, 66% of newly completed single-family homes featured two-car garages, according to NAHB’s analysis of the Census’s Survey of Construction data. This was the most common parking option across all Census divisions.

By Census division, South Atlantic had the highest share of two-car garages at 72%. Three or more car garages were most popular in the West North Central division (38%), while one-car garages were most frequent in the Middle Atlantic division (22%).”Other” parking options, including carports and off-street parking, were most common in the East South Central division (17%).

Nationwide, the share of new homes with three or more car garages was 17% in 2023. Three or more car garages have been trending downward since the peak of 24% in 2015, decreasing 2% from 2022.  One-car garages were present in 8% of new homes, another 2% possessed a carport, and 8% did not have any garage or carport.

As home size increased, the share of homes with one-car garages or “other” parking options decreased. For homes under 1,200 square feet, “other” parking options were most common (72%). As home sizes go over 5,000 square feet, this share drops to just 2%. One-car garages were most common in homes between 1,200 and 1,599 square feet (18%), while only 1% of homes over 5,000 square feet had this feature.

Two-car garages were most prevalent in homes between 1,600 and 1,999 square feet (72%), with the largest share at 81% for homes between 2,000 and 2,399 square feet. For homes between 2,400-2,999 square feet, the two-car garage share fell to 77%. Two-car garages were also the most popular options for homes 3,000-4,999 square feet as well with a smaller share at 58%. Three-car garages were rare in smaller homes (3% for those under 1,200 square feet) but became the most common option (65%) for homes over 5,000 square feet.

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Home Buyers Preferences for Window and Door Features

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The latest NAHB study on home buyer preferences – What Home Buyers Really Want Study – asked consumers about the features and amenities they would want in a home, specifically regarding windows and exterior doors.  Respondents were asked to rate eight window and four exterior door features using the following four-point scale:

Do not want – not likely to buy a home with this design or feature.

Indifferent – wouldn’t influence decision.

Desirable – would be seriously influenced to purchase a home because this design or feature was included.

Essential/Must have – unlikely to purchase a home without this design or feature.

Windows

ENERGY STAR rated windows were rated essential or desirable by 83% of home buyers, followed by triple-pane insulating glass (77%) and low e-insulating glass (67%).  Since its introduction to the survey in 2007, ENERGY STAR rated windows have been wanted by at least 83% of home buyers (Figure 1).  Additionally, ENERGY STAR windows were ranked the third most wanted feature out of the 200+ options asked within the survey.

Doors

All four exterior door features were rated essential or desirable by a majority of home buyers (>50%) with very little separating the highest (sliding patio doors at 64%) to the lowest (double main entry door at 58%) rated options.  Furthermore, all four exterior door features have increased in popularity compared to 2020, with double main entry door rising the most (10 percentage points) (Figure 2). 

Additionally, like the other areas of the home covered in the study, every question on windows and doors is tabulated by the buyer’s income, age, geography, race, household type, and the price they expect to pay for the home.  These details can be very useful in particular cases.  For example, the study discusses the three window features that appeal to older buyers, as well as how preferences for hinged/French patio doors change by income level and home price. 

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Over Two-Thirds of New Homes in 2023 Feature Porches

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Porches continue to rank as the most common outdoor feature on new homes, according to NAHB tabulation of the latest data from the Survey of Construction (SOC, conducted by the U.S. Census Bureau with partial funding from HUD). Of the roughly 950,000 single-family homes started in 2023, the SOC data show that 67.7% were built with porches. This is four full percentage points higher than the 63.7% reported for patios, and marks the first time the share of new homes with porches has surpassed two-thirds since the re-design of the SOC in 2005.

Traditionally, porches on new homes have been most common in the four states that make up the East South Central Census division. That was true again in 2023, although by the narrowest of margins. While 81% of new homes in the East South Central had porches in 2023, that was only a single percentage point higher than the 80% recorded in the Pacific Division. The share was also over 70% in four other divisions: the Mountain (77%), South Atlantic (74%), East North Central (73%) and New England (72%). Once again, the division with the smallest share of poches on new homes was the West South Central (42%). After some significant changes between 2021 and 2022, the 2023 divisional percentages were not drastically different from the ones reported for 2022 in last year’s post.

Detail about the characteristics of porches on new homes is available from the Builder Practices Survey (BPS), conducted annually by Home Innovation Research Labs. Among other things, the 2024 BPS report (based on homes built in 2023) shows that porches continue to be most common on the front of new single-family homes, rather than on the side or rear. When on the front, porches average approximately 100 square feet of floor area, compared to 140 square feet for a side or rear porch, and 200 square feet for a screened-in porch.

On a square foot basis, builders continue to use concrete more than any other material in new-home porches—except in New England, where composite (a blend of usually recycled wood fibers and plastic) is most common, and treated wood, PVC or other plastics, cedar, and natural stone are each used more than concrete.

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New Home Sales Fall in August

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Expectations of the Federal Reserve beginning the first in a series of rate reductions kept potential home buyers in a holding pattern in August.

Sales of newly built, single-family homes in August fell 4.7% after an unusually strong July, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  August new home sales registered a 716,000 seasonally adjusted annual rate, after an upwardly revised estimate of 751,000 for July.

Despite the slip in August, the three-month moving average for new home sales is at its highest level since March of 2022. New home sales are up 4% on a year-to-date basis through August.

Builder sentiment and future sales expectations are improving as the Federal Reserve begins a credit easing cycle. However, due to the mortgage interest lock-in effect, declining interest rates will mean rising existing home inventories and some additional new competition for home builders.

While a 7.8 months’ supply may be considered elevated in normal market conditions, there is currently only a 4.1 months’ supply of existing single-family homes on the market. Combined, new and existing total months’ supply remains below historic norms at approximately 4.7, although this measure is expected to increase as more home sellers test the market in the months ahead.

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 August reading of 716,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory increased 1.7% to 467,000 in August, a 7.8 months’ supply at the current sales pace.  Completed, ready to occupy inventory increased to 105,000 homes, which is the highest level since 2009. However, this share makes up only 22% of new home inventory.

Median new home price fell back to $420,600, down 4.6% from a year ago due to builder price incentives amid multidecade highs for housing affordability challenges. The Census data reveals a gain for new home sales priced below $300,000, which made up 18% of new home sales in August compared to 12% a year ago.

Regionally, on a year-to-date basis, new home sales are up in all four regions, rising 2.1% in the Northeast, 21.9% in the Midwest, 0.8% in the South and 4.7% in the West.

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Bedrooms in New Single-Family Homes in 2023

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In 2023, the most common number of bedrooms in newly-built single-family homes continued to be three at a 45.7% share.  This share is up almost three percentage points from 42.8% in 2022. The second highest share was single-family homes with four bedrooms at 33.1%, followed by homes with two bedrooms or less at 11.5% and then homes with five or more bedrooms at 9.7%.

As shown above, the share of single-family homes started with three bedrooms rose to its highest level since 2019. While this share rose, the second most frequently built number of bedrooms (four) fell to 33.1%, the lowest share for such homes since 2012. At the same time, the share of new single-family homes with 2 bedrooms or less reached its highest level since 2012. The share of homes with five bedrooms or more has remained fairly stagnant at around 10% over the past ten years.

Regions

Across U.S. Census divisions, the share of new single-family homes with four or more bedrooms features distinct variations. The share ranged from a low of 22.0% in the New England division to the highest share of 47.9% in the West South Central division. Coinciding with the fall in the share of new single-family homes with 4 bedrooms or more nationally, there are no divisions that have a share above 50%. In 2022, the data featured the South Atlantic (51.7%), Pacific (51.4%) and West South Central (50.6%) all with above 50% shares.

Purpose of Construction

The number of bedrooms in the home greatly varied in 2023 depending on a new single-family home’s purpose of construction (built-for-sale, contractor-built, owner-built, built-for-rent). Most of this variation comes from the two-bedroom or less homes and four-bedrooms homes. For example, the share of new single-family homes with two bedrooms or less ranges from 5.7% of homes built-for-sale to 38.4% of homes built-for-rent. Meanwhile, three-bedroom homes and five or more bedroom homes display relatively little change across purpose of construction, as shown in the chart below.   

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