Builder Optimism and New Building Permits Reflect a Positive Outlook for Residential Construction in 2024

The U.S. building industry has seen a notable increase in optimism, reflected in the rise of building permits and housing starts, especially in single-family residential construction. According to data from the U.S. Census Bureau and HUD, 1,491,000 building permits were issued in May 2023, up 4.8% from April 2023. Of these, 897,000 were for single-family residential construction, despite a 13.2% decrease from May 2022​​.

Builder Sentiment and Future Expectations

Builders exhibit a significant level of optimism about the future. Most building product manufacturers are optimistic about the next 2-3 years, with many reporting better-than-expected performance and growth in sales. This optimism is crucial for understanding market dynamics and the behaviors of different types of builders, ranging from large commercial builders to smaller operators​​.

The Farnsworth Group notes that remodeling contractor confidence aligns with the Joint Center for Housing Studies’ forecast of remodeling activity. While there is a slight decrease in confidence for gaining new business in the next six months, the residential remodeling activity remains less volatile than new home construction activity.

Home values remaining high suggest that remodeling will continue to perform well, with homeowner spending projected to reach about $458 billion by Q1 2024​​.

Single-Family vs. Multi-Family Housing Trends

There is a noticeable shift in the construction market, with multi-family housing starts expected to decline due to more restrictive borrowing environments and lower cap rates. Consequently, single-family construction and remodeling are becoming more viable. As of May 2023, 594,000 multi-family units were started, showing a mixed trend in permits for multi-family projects​​.

Recent Construction Activity

In July, U.S. housing starts were at a seasonally adjusted annual rate of 1.452 million, 3.9% above the downward revised June estimate. Permits, housing starts, and completions all showed an upward trend compared to June.

Single-family housing starts rose 6.7%, and permits increased to the highest level since June 2022, indicating cautious builder optimism. This trend is seen as a response to the demographic demand from millennials and the lack of existing-home inventory​​.

Builder confidence for newly built single-family homes has been rising, with the National Association of Home Builders/Wells Fargo Housing Market Index showing an increase to 56 in July. This increase marks the seventh straight month of increasing builder confidence after declines in 2022​​.

Economic Impact and Future Projections

Housing starts in December 2023 showed an overall 7.6% increase compared to the previous year, with single-family starts up 15.8%. Permits to start homes also rose, suggesting continued optimism among builders. Single-family permit applications have been increasing for 11 consecutive months, surpassing their pre-pandemic peak​​.

The increase in builder confidence, coupled with rising building permits, suggests a positive outlook for the U.S. residential construction sector in 2024. Despite challenges like rising mortgage rates and affordability issues, the industry is adapting, with single-family construction poised for growth.

This trend reflects the essential role of new home construction in meeting housing demand, especially given the demographic shifts and limited existing-home inventory.