That was caused in part by prohibitively high mortgage rates, which lingered near the 7% mark for much of the year except for a brief dip at the end of the summer. While developers have offered incentives including mortgage rate buydowns in recent months, customer cancellations are on the up – and building permits, a key indicator of future construction, fell by 0.7% in December.
Still, permits came in slightly higher than expected, at 1.483 million compared to consensus expectations of 1.46 million, with single-family permits increasing 1.6% compared with November.
But First American deputy chief economist Odeta Kushi said the improving outlook for housing starts and higher-than-expected permits aligned with “cautiously optimistic” builder sentiment for 2025.
She said potential interest rate cuts by the Federal Reserve in the year ahead could also provide some relief and contribute to a “modest” rise in single-family starts this year – “but builders know that ‘higher-for-longer’ mortgage rates will keep buyers cautious. Builders will continue to offer incentives like mortgage rate buydowns to bring buyers to the table.”
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