Lack Of Building Set To ‘Send Unfortunate Ripples’ Through Housing Market

The majority of U.S. metropolitan areas saw a decrease in new home permits in 2023, suggesting the going will get tougher for would-be buyers even as multifamily options are growing.

The number of permits issued to build new homes fell 11% year-over-year, according to a Point2 report released Thursday. Housing completions still totaled 1.4 million new homes, a 4.2% increase from 2022. But that number was dwarfed by new multifamily construction.

About 1 million single-family homes and 450,000 new housing units were built last year, the report shows, representing a 2% decrease in single-family home completions last year and a 22% increase in the production of multifamily units.

The report indicates the rental sector could get a boost while the homebuying market still faces significant pressure.

With fewer homes under construction — homes under construction fell 9% year-over-year — and fewer permits being issued, future buyers will face dwindling options in a market already experiencing tight supply, the report states.

Construction kicked off on just 947,000 single-family homes in 2023, the second consecutive year that new residential construction fell. The report attributes the drop-off largely to the increased cost of capital and construction.

These factors “could send unfortunate ripples through the housing market in the not so distant future,” the report stated.

“Fewer permits in 2023 means fewer new homes in the following years, adding insult to injury in a housing market that's already suffering from low inventory and completely unaffordable prices.” 

Home prices reached a record high in October 2023, when sales were also at their lowest level in 15 years. This was largely due to persistent mortgage rate increases that stifled activity.

The average 30-year mortgage rate rose from 6.9% to 6.94% last week, ABC News reported, citing Freddie Mac data. A year earlier, the rate averaged 6.65%.

The number of new home permits dropped in 70% of metros. The three metros that had the highest number of permits issued were Houston, with about 68,300 permits, Dallas, with 66,500 permits and Phoenix, with about 45,600 permits, the Point 2 report states.

But it was mainly smaller metropolitan areas that saw new home permits increase last year. Nashville saw almost 24,000 permits issued in 2023, an almost 28% increase from the year prior. Huntsville, Alabama, saw a 47% increase with close to 6,000 permits issued.

California saw some homebuilding growth as well, with San Diego, Riverside-San Bernardino and Sacramento all issuing more new home permits in 2023 than 2022.