The US housing market closed out 2023 on a mixed note according to recent data from the National Association of Realtors (NAR) and the December 2023 New Residential Construction report. While housing starts were up 7.6% compared to December of last year, following through on a trend of rising construction in November, the NAR reported that home sales fell 6.2% in 2023.

Looking into more of the data from the NAR, it was revealed that full-year sales for 2023 hit 4.09 million units, marking a 29-year low for the US housing market as housing prices themselves hit record highs at a median home price $389,800 for the entire year.

The upside, according to NAR economist Lawrence Yun, however, is that December’s sales “look to be the bottom,” noting that the sky-high mortgage rates and low inventory woes are potentially easing off heading into 2024.

Lowering mortgage rates and the sign that interest rate cuts may indeed start as early as March of this year has filled the sails of homebuilders, despite the lower number of housing starts compared to the previous month.

Overall, housing starts fell 4.3% in December 2023 compared to November 2023. Single-family specifically dropped 8.6% compared to November, but remain 15.8% up compared to the prior year at 1.03 million starts. Multifamily homes, meanwhile, saw robust growth as well, increasing 8% to 433,000 starts in the month of December.

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The National Association of Homebuilders (NAHB) notes that this marks the second straight month single-family home production surpassed 1 million units while, according to the NAR’s report, the current stock of unsold existing homes sits at roughly 1 million units, amounting to 3.2 months of supply at the current monthly sales pace.

“Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Alabama in a press release by the NAHB.

More permits are also getting pulled, which seems to suggest a mounting growth factor for the number of homes to be built this year. Overall permits rose 1.9% over November 2023 to 1,495,000 with single-family permits rising 1.7% to 994,000 and MDU permits rising to 501,000. But this doesn’t mean a straight transition to a surging market.

“Moderating mortgage rates are expected to provide a boost to new home construction in 2024, but an uptick in building material prices and a shortage of buildable lots and skilled labor are serious challenges for home builders,” Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.

“Obviously, the recent, rapid three-year rise in home prices is unsustainable,” Yun notes. “If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”

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