US single-family housing starts rebound; tariffs an obstacle

U.S. single-family homebuilding rebounded in November as the drag from hurricanes faded, but the threat of tariffs on imported goods and potential labor shortages from mass deportations of immigrants could hamper new construction next year.

The report from the Commerce Department on Wednesday showed only a slight increase last month in permits for the future construction of single-family homes, suggesting that residential investment will probably not contribute much to economic growth in the fourth quarter.

Higher mortgage rates even as the Federal Reserve has been lowering borrowing costs remain a constraint for the housing market, with promised tariffs and expulsions of undocumented immigrants by President-elect Donald Trump seen worsening the situation.

The U.S. central bank on Wednesday delivered a third consecutive rate cut, but projected only two reductions in borrowing costs next year compared to the four it had forecast in September, citing continued economic resilience.

There are also concerns that some of the incoming Trump administration’s policies would be inflationary.

“We are less upbeat about the outlook, as we expect Donald Trump’s proposed trade and immigration policies to weigh on homebuilders’ supply capacity,” said Bradley Saunders, North America economist at Capital Economics.

Single-family housing starts, which account for the bulk of homebuilding, jumped 6.4% to a seasonally adjusted annual rate of 1.011 million units last month, the Commerce Department’s Census Bureau said.

Homebuilding has struggled for much of this year after benefiting from a severe shortage of previously owned homes for sale. Though the Fed started cutting interest rates in September, the average rate on the popular 30-year fixed-rate mortgage remains near 7%, tracking 10-year U.S. Treasury yields, which have risen on the economy’s resilience and worries that the incoming administration’s policies will stoke inflation.

The Fed’s policy rate has now been reduced by 100 basis points and is now in the 4.25%-4.50% range. It was hiked by 5.25 percentage points between March 2022 and July 2023.

“Our Treasury strategists only expect about a 15 basis-points decline in 10-year rates by the end of next year, which suggests limited room for mortgage rate cuts,” said Abiel Reinhart, an economist at JPMorgan.

“At the same time, the possibility of less net immigration could reduce household growth, while also depressing labor availability in the construction industry.”

Stocks on Wall Street fell on the Fed’s rate projections. The dollar advanced versus a basket of currencies. U.S. Treasury yields rose.

Higher lumber prices

A National Association of Home Builders survey on Tuesday showed homebuilder sentiment steady at seven-month highs in December on hopes for fewer regulations from Trump’s Republican administration. Economists, however, warned of even higher lumber prices and severe worker shortages if Trump followed through with his proposed trade and immigration policies.

The U.S. imports large quantities of lumber from Canada, the main raw material in home construction. Trump has said he would impose a 25% tariff on all imports from Canada and Mexico.

President Joe Biden’s administration this year raised tariffs on imports of Canadian softwood lumber products to 14.54% from 8.05%.

“Many of the regulations on residential building are imposed at the state and local level,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “Foreign-born workers who are not citizens comprise about 18% of the construction workforce.”

Ground-breaking on single-family housing projects rebounded 18.3% in the densely populated South after being depressed by Hurricanes Helene and Milton in October.

Single-family housing starts, however, declined in the Northeast, Midwest and the West.

Single-family homebuilding fell 10.2% from a year ago.

Starts for multi-family housing plunged 24.1% to a pace of 264,000 units, the lowest level since March. Overall housing starts dropped 1.8% to a rate of 1.289 million units.

Economists polled by Reuters had forecast housing starts would increase to a rate of 1.343 million units. Starts dropped 14.6% from a year ago.

Permits for future construction of single-family housing rose 0.1% to a rate of 972,000 units in November. Single-family housing permits increased 1.8% in the South. They declined in the Northeast and West, but were unchanged in the Midwest.

Multi-family building permits soared 22.1% to a rate of 481,000 units. Building permits as a whole jumped 6.1% to a rate of 1.505 million units. They slipped 0.2% from a year ago.

Residential investment has been a drag on GDP for two straight quarters. The Atlanta Fed is forecasting GDP rising at a 3.2% annualized rate in the fourth quarter. The economy grew at a 2.8% pace in the July-September quarter.

The number of houses approved for construction that were yet to be started increased 6.1% to 295,000 units last month.

The single-family homebuilding backlog rose 0.7% to 144,000 units. The completions rate for that housing segment increased 3.3% to 1.038 million units.

Overall housing completions fell 1.9% to a rate of 1.601 million units. The number of housing units under construction dropped 1.8% to a rate of 1.434 million units.

The inventory of single-family housing under construction decreased 0.8% to a rate of 637,000 units, the lowest level since March 2021.