Permit Declines in 2023 Point to Possible 2024 Slowdown

The home construction market—despite seeing some growth from the lack of existing inventory—has been struggling overall and in the building permit segment. The data is pointing toward a possible slowdown coming this year, especially as there are still supply chain issues at play.

To be specific, the number of homes under construction fell by 9%, while the total number of permits dropped by 11% year-over-year, according to a new report from Point2.

Point2’s yearly Housing Construction Report found that, despite a 22% increase in completed construction of multifamily units, permits fell for the second year in a row in 2023. The 11% drop mentioned previously followed a 5% drop in 2021.

Like permits, total started units fell in 2023, by 9%. Similar to the negative trend in permitting activity, 2023 was the second year when builders broke ground on fewer homes compared to the previous year.

Regional level: 

The South led with the most permits issued (821,600), followed by the West (344,500), the Midwest (190,200) and the Northeast (114,300).

State level: 

Despite year-over-year drops in numbers of permits, the top three states hoping to build the most in the near future are Texas, Florida and California, all of which boast numbers of permits higher than 100,000 and even more than 200,000. On the other hand, in 18 states, less than 10,000 permits were issued per state, with Alaska authorizing less than 1,000 new homes.

Metro level: 

Of the 384 total metros in the U.S., the report found that permits fell in 266 and increased or stagnated in 118. This translates to a staggering 70% of metros seeing a reduction in new permits. The three metros that had the highest numbers of permits issued in 2023 were Houston-The Woodlands-Sugar Land, Texas; Dallas-Fort Worth-Arlington, Texas; and Phoenix-Mesa-Chandler, Arizona.

Of the 56 large metros, permits increased in only 10. Of those, only seven metros saw more significant jumps (between 10% and 35%) in the number of authorized new homes. In the remaining 46 large metros, permitting activity went down or, at best, stagnated.

Major takeaway:

“Theoretically, new construction should be bolstered by the acute shortage of housing on the market,” said Andra Hopulele, a senior real estate writer at Point2 and author of the report. “However, with supply chain issues piling up and loan rates for builders continuing to rise, developers’ confidence is going in the opposite direction.”

Hopulele added, “And, as both builders and home sellers become more cautious and keep to the sidelines to try to insulate themselves from the negative effects of rising rates and financial uncertainty, their withdrawal might negatively affect supply and affordability in the near future.”

“That said, the new year seems to bring a welcome change: Despite the factors pushing back on housing construction and permitting activity, mortgage rates falling below 7% might signal a positive shift,” concluded Hopulele.

For the full report, click here.

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